Immediate Expensing of Certain Depreciable Property
Author: Vern Peters, Tax Advisory Specialist, CPA, CA, Partner
In the 2021 federal budget, the government proposed that Canadian-controlled private corporations could immediately expense certain depreciable property acquired on or after April 19, 2021 that is available for use before January 1, 2024. We expect that the regulations for the Income Tax Act will need to be amended for this change. Normally regulations can be changed or added by the government without having to go through the parliamentary process. To date, the regulations have not been changed. There have been rumours of an upcoming election as early as late summer. Will this budgetary proposal become law? It is difficult for you to plan for immediate expensing for certain depreciable property purchased on or after April 19, 2021 when the government has not enacted this change.
Shortly after the budget was delivered, we provided a link to the budget commentary from RSM Canada. Included in the budget commentary was the following relating to immediate expensing:
- To enhance the Capital Cost of Allowance (CCA) deduction for Canadian-controlled private corporations (CCPCs), the Budget proposes “immediate expensing” of certain depreciable property. The expense is available for property acquired on or after April 19, 2021, that is available for use before Jan. 1, 2024. The expense is limited to $1.5 million per taxation year, which must be shared amongst associated members of a group of CCPCs.
- Property eligible for this new measure would be capital property subject to CCA, other than property in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51.
- CCPCs can claim the $1.5 million immediate expensing in addition to all other existing provisions of the Income Tax Act, including the Accelerated Investment Incentive. This may be an opportunity for the CCPCs considering expansion in the near future to undertake investments, at a low tax cost.
The most common classes for our clients that are included in the immediate expensing are Classes 8, 10, 16 and 50. Class 8 includes equipment that is not self-propelled. Class 10 includes equipment that is self-propelled. Class 16 includes larger trucks such as semi tractors. Class 50 includes computer hardware.
The most common classes for our clients that are not included in the immediate expensing are Classes 1 and 6. Both of these classes are for buildings.
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Vern Peters CPA, CA
Tax Advisory Specialist, Partner
Vern works closely with his team specializing in income tax. Our firm has a large agricultural focus, but we also work with many other types of businesses. We specialize in Canadian income tax consulting and implementing income tax plans for private businesses and individuals.