As part of the federal government’s aim to boost business investment, the 2021 budget proposed a new temporary measure to allow Canadian-controlled private corporations (CCPCs) to immediately expense up to $1.5 million of eligible property in each year from 2021 to 2023.
The proposed rules
The new temporary measure would allow CCPCs to immediately expense certain capital property acquired on or after April 19, 2021 and that becomes available for use before January 1, 2024.
- Current Rules: For example, under the current rules, a Class 10 addition of $500,000 results in a first year capital cost allowance deduction of $225,000 assuming it is eligible for the existing enhanced capital cost allowance under the Accelerated Investment Incentive.
- Proposed Rules: This same example above would see the corporation eligible for a $500,000 expenses (twice the deduction under the current rules).
$1.5 million limit
The immediate expensing measure has a limit of $1.5 million per taxation year that must be shared among associated members of a group of CCPCs.
What properties are eligible?
For purposes of this new measure, eligible property generally includes all depreciable capital property, other than certain classes of pertaining to long lived assets, such as buildings and certain structures, and unlimited life intangibles including goodwill.
Immediate expensing would generally only be available on eligible property that:
- Was neither previously owned by the taxpayer or a non-arm’s length person.
- Has not been transferred to the taxpayer on a tax-deferred rollover basis.
Understanding the benefit
The proposed rules do not change the total amount of capital cost allowance that may be claimed in respect of an asset. The main benefit of the new measure for CCPCs is tax-deferral by accelerating tax deductions for the owner-managed corporation in the year the property becomes available for use.
Planning points to remember
When it comes to tax planning for your CCPC, the new measure highlights several points you should keep top of mind:
- Time your eligible property purchases.There is no ability to carryforward an amount of the $1.5 million limit that is not used in a particular year. Where possible, it would be advisable to manage the timing of when eligible property acquisitions are made by your CCPC.
- Choose to immediately expense eligible property in classes with the lowest CCA rate.If your corporation acquires eligible property in excess of the $1.5 million limit in a taxation year, you can select which CCA classes the immediate expensing measure is applied to. The excess capital cost would then be subject to the normal CCA rules. As such, you should choose to immediately expense the capital cost of eligible property acquisitions in CCA classes with the lowest rates first in order to maximize your overall CCA deduction for the year.
The federal government has not yet released legislation to implement the new measure. To fully understand and benefit from the new proposals, your tax advisor can keep you apprised of new developments and make sense of the implications for you and your CCPC.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. As personal tax season approaches, Scott and his team understand personal taxes are as individual as clients themselves. BDO works closely with their clients to understand their specific needs and adjust strategies accordingly. BDO partners and staff take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.