SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2019. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the temporary difference between straight line depreciation and capital cost allowance on December 31, 2019?

A) Nil
B) $1,500
C) $2,000
D) $3,000

The straight-line depreciation for the first year will be (30,000 ÷ 20) = $1,500.

For tax purposes, using the capital cost allowance rate of 20%, the first year's depreciation will be (30,000 x 20%) = $6,000. However, the half-year rule applies, which means that only 50% of the CCA rate is used for the first year. Therefore, the tax depreciation for the first year will be (30,000 x 10%) = $3,000.

The temporary difference between straight-line depreciation and tax depreciation for the first year will be ($3,000 - $1,500) = $1,500.