Immediate Expensing of Eligible Property
The federal government has proposed new measures to provide immediate expensing of eligible property acquired by Canadian-controlled private corporations (CCPCs). This temporary measure will allow CCPCs to immediately expense up to $1.5 million of eligible property per taxation year from April 19, 2021 to December 31, 2023.
$1.5 Million Limit
The $1.5 million limit would be shared amongst a group of associated CCPCs and would be prorated for taxation years that are less than 365 days. No carry-forward of excess capacity is permitted for CCPCs that incur less than $1.5 million of eligible capital costs.
The enhanced deduction is applicable to all capital property that is subject to capital cost allowance (CCA) rules except for the properties included in the following CCA classes:
- Class 1 (4%): buildings acquired after 1987
- Class 3 (5%): buildings acquired before 1988
- Class 6 (10%): wooden buildings, fences, and greenhouses
- Class 14.1 (5%): patents, franchises, and concessions
- Class 17 (8%): roads, parking lots, sidewalks, airplane runways, or storage areas
- Class 47 (8%): liquefied natural gas facility equipment
- Class 49 (4%): pipelines used for the transmission of petroleum or natural gas
- Class 51 (6%): pipelines used for the distribution of natural gas
The eligible property must be acquired on or after April 19, 2021 and become available for use before January 1, 2024. The immediate expensing of eligible property is only available in the year which the property becomes available for use. The half-year rule which restricts taxpayers to claim CCA on only half of the net additions to a class in the year of purchase does not apply to eligible property that is immediately expensed under this measure.
Immediate expensing is available only if both of the following conditions are met:
- The property was not previously owned by the taxpayer nor a non-arm’s length person; and
- The property has not been transferred to the taxpayer on a tax-deferred rollover basis.
Interactions with Other Provisions
CCPCs with eligible capital costs exceeding $1.5 million would be allowed to decide which CCA class is immediately expensed. Any excess capital cost would be subject to the normal CCA rules including the accelerated investment incentive which allows for a CCA claim of up to one-and-a-half times the net addition to the class in the year of purchase. Other existing enhanced deductions, such as the full expensing of manufacturing and processing equipment and clean energy equipment, would not reduce the $1.5 million limit proposed under this measure.
W&P is Here to Help
Our team at Williams & Partners is available to provide further information and assistance to businesses with concerns regarding the immediate expensing of eligible property. If you have any questions or concerns, please do not hesitate to contact our office.
Yours very truly,
Williams & Partners