are not subject to recapture. Capital investment appraisal under CCA rules Because assets subject to CCA are generally pooled by class, and CCA is generally calculated on a declining-balance basis, specific techniques have been developed to determine the net present after-tax value of such capital investments. For standard scenarios under the full-year rule and half-year rule models, the following standard items are employed: I = Investment d = CCA rate per year for tax purposes t = rate of taxation n = number of years i = cost of capital, rate of interest, or minimum rate of return (whichever is most relevant) More specialized analysis would need to be applied to: assets with specific lives (i.e. Classes 13 and 14) assets with non-standard rate calculations (i.e. Class 29) assets that are deemed to constitute a separate class of property, thus not becoming part of a capital cost pool scenarios where disposal values at a future date are part of the appraisal calculation, leading to a deduction from the capital cost pool, a recapture of depreciation, or the calculation of a taxable capital gain Full-year rule Capital cost allowance will be calculated as follows: Therefore, the Tax shield in year n = , and the present value of the taxation credits will be equal to As this is an example of a converging series for a geometric progression, this can be simplified further to become: The net present after-tax value of a capital investment then becomes: Half-year rule For capital investments where CCA is calculated under the half-year rule, the CCA tax shield calculation is modified as follows: Therefore, the net present after-tax value of a capital investment is determined to be: Case Law In cases where claims have been contested or disallowed by the Canada Revenue Agency, the Supreme Court of Canada has interpreted the Capital Cost Allowance in a fairly broad manner, allowing deductions on property which was owned for a very brief period of time, and property which is leased back to the vendor from which it originated. These decisions demonstrate the flexibility of the Capital Cost Allowance as a legal tax reduction strategy. See also Income taxes in Canada MACRS - Modified Accelerated Cost Recovery System - U.S. Internal Revenue Code Capital cost tax factor References Further reading Taxation in Canada Capital gains taxes Depreciation