Immediate Expensing of Capital Property

On April 19, 2021, the Department of Finance introduced a proposal related to the immediate expensing of certain properties as part of the 2021 Federal Budget. Crowe MacKay’s tax team provides a summary of how these changes may impact your business.

Temporary Immediate Expensing of Eligible Property for Canadian-Controlled Private Corporations (CCPCs)

• Provides temporary immediate expensing for certain property acquired by a CCPC that would otherwise qualify for capital cost allowance (CCA)

• This would apply to all capital property subject to CCA rules, excluding CCA classes 1 to 6, 14.1, 17, 47, 49, and 51

• The normal “half year rule” that applies to most CCA classes would be suspended for such property

• The immediate expensing will be limited to $1.5 million per taxation year and only available in the year in which the property becomes available for use

• The $1.5 million limit is to be shared amongst an associated group of CCPCs

• Eligible property must be acquired after April 18, 2021, and be available for use before January 1, 2024

• For companies with less than $1.5 million of eligible capital costs in a taxation year, there will be no ability to carryforward any excess room

Recent Updates to the Proposed Immediate Expensing of Capital Property

On February 4, 2022, draft legislation for this proposal was released by the Department of Finance for consultation with the consultation period ending March 7, 2022.

• The draft legislation proposes to expand the eligibility of the $1.5 million temporary immediate expensing to include unincorporated businesses carried on directly by Canadian resident individuals (other than trusts) and certain eligible partnerships.

• These new measures would be effective for eligible capital property investments made on or after January 1, 2022, that become available for use before 2025 for individuals and partnerships all the members of which are individuals, and 2024 for other partnerships.

• Eligible partnerships would include those with members all of which would otherwise have been eligible to the benefit in the taxation year had they carried the business of the partnership on directly.

• Partnerships excluded from these new measures include multi-tiered partnerships.

• The Canada Revenue Agency (“CRA”) is unlikely to allow the claiming of the immediate expensing until the legislation is introduced in the House of Commons as a Bill.

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.