When the Federal Government presented the 2021 Federal Budget on April 19, 2021, many Canadians were surprised to see only minor proposals relating to personal and corporate income tax. There was one important change, however, that was introduced to help provide tax relief to Canadian Controlled Private Corporations (CCPC). The “Immediate Expensing” rules allow CCPC’s to deduct the full cost of certain depreciable capital assets in the year that they are acquired, accelerating what can often be a significant deduction to reduce taxes owing.
Here are a few important things to know about the Immediate Expensing Rules and how your business can take advantage.
What assets are eligible for the Immediate Expensing Rules?
“Eligible Property” for the purposes of these new rules includes any capital property that is subject to the CCA rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets. This will mean that most machinery and equipment, including items such as tractors or combines (Class 10) will qualify.
When are the new rules coming into place?
The new Immediate Expensing rules are effective for any Eligible Property purchased on or after budget day (April 19, 2021) and before January 1, 2024.
Is there a limit to the amount of costs that can qualify for Immediate Expensing?
There is a limit of $1.5 million per taxation year which must be shared among associated members of a group of CCPCs. The limit would be prorated for taxation years that are shorter than 365 days. For those CCPCs with less than $1.5 million of eligible capital costs, no carry-forward of excess capacity would be allowed. Note that the half-year rule that normally applies in the year of purchase is suspended for property for which this measure is used.
Are there any other restrictions that apply?
Property that otherwise meets the definition of “Eligible Property” (see #1 above) will qualify for immediate expensing only if both of the following conditions are met:
- Neither the taxpayer nor a non-arm's length person previously owned the property; and,
- The property has not been transferred to the taxpayer on a tax-deferred "rollover" basis.
How do the new Immediate Expensing Rules interact with other accelerated CCA provisions already provided for in the Income Tax Act?
The availability of other enhanced deductions under existing rules (such as the full expensing for manufacturing and processing machinery and equipment and for clean energy equipment, introduced in the 2018 Fall Economic Statement) would not reduce the maximum amount available under this new measure. In other words, a CCPC may expense up to $1.5 million in addition to all other CCA claims under existing provisions of the Income Tax Act, provided the total CCA deduction does not exceed the capital cost of the property.
For additional information regarding the 2021 Federal Budget including the Immediate Expensing rules and other important proposals, visit our Federal Budget Commentary page.
The information in this publication is current as of June 14, 2021.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Gregory, Harriman & Associates LLP to discuss these matters in the context of your particular circumstances. Gregory, Harriman & Associates LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.