Which of the following statements about the tax shield benefits from the Capital Cost Allowance(CCA) is correct?
A) If the lessee's tax rate is less than the lessor's tax rate, then the tax shield benefits from CCA would be more valuable to the lessee than to the lessor
B) If the lessee's tax rate is less than the lessor's tax rate, then the tax shield benefits from CCA would be more valuable to the lessor than to the lessee
C) The tax shield benefits from CCA affect neither the lessee nor the lessor
D) The tax shield benefits from CCA would be equally valuable to the lessee and the lessor

Question

Quizplus · Accepted Answer

The tax shield benefits from CCA are more valuable to the lessor than to the lessee if the lessee's tax rate is less than the lessor's tax rate. This is because the lessor can claim the tax benefits at a higher tax rate, resulting in a larger reduction in tax liability. The lessee, on the other hand, may not be able to fully utilize the tax benefits if their tax rate is lower. Therefore, it is beneficial for the lessor to pass on some or all of the tax benefits to the lessee in the form of lower lease payments.

Which of the Following Statements About the Tax Shield Benefits