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# Capital cost tax factor

The capital cost tax factor (CCTF) is a calculated value that summarizes the benefits of future tax savings due to Capital Cost Allowance (CCA) in Canada. CCTF also allows analysts to take these benefits into account when calculating the present worth value of an asset. The CCTF is a constant that is a function of the CCA rate, the interest rate, and the tax rate. CCTF allows the analyst to find the present worth independently of the actual first cost of the asset.

There are two ways to calculate CCTF. There is an older method (used before November 13, 1981) and a new method. The new CCTF is used for capital purchases on or after November 13, 1981.

Calculating CCTF

Calculating CCTF old
$CCTF = 1 - t*d/\left(i+d\right)$

Calculating CCTF new
$CCTF = 1 - t*d*\left(1+i/2\right)/\left(\left(i+d\right)*\left(1+i\right)\right)$

where
t = taxation rate
d = CCA rate
i = after-tax interest rate

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