Disposal tax effect

The situation of additional taxes or tax savings resulting from selling the last item of its class in an inventory due to difference between its undepreciated capital cost (UCC) and its salvage value (SV).^[1]

Overview

"Disposal tax effect" is a finance term originating from Engineering Economics.

In the case of SV > UCC, then there has been a relative gain in the sale of the item, which gets taxed. These gains are known as "recaptured depreciation" or "recaptured CCA".

When SV < UCC, then there has been a loss, which results in tax savings.

References

1. ^ Chan S. Park et al., Contemporary Engineering Economics (Second Canadian Edition), Addison Wesley Longman, 2001. ISBN 0-201-61390-5

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