The 2019 tax filing season has arrived and with that comes changes and reminders which can impact your tax return. Here are four changes you should be aware of:
1. Accelerated Investment Incentive Property
The proposed Accelerated Investment Incentive was introduced to allow businesses in Canada to increase the tax depreciation deduction with respect of the cost of their capital investments in the year of acquisition.
Generally, businesses that purchase capital investments (such as equipment, vehicles, etc.) are able to deduct a portion of the cost according to prescribed rates to account for a depreciation factor. This deduction is referred to as capital cost allowance (“CCA”). Prior to the introduction of this incentive, capital asset additions made in a year would be subject to the “1/2 year rule” whereby 50 per cent of the net additions is used to calculate the CCA deduction.
The Accelerated Investment Incentive will suspend the “1/2 year rule” on capital investments purchased and will provide an enhanced CCA equal to one-and-a-half times the normal first year CCA. This incentive applies to eligible capital investments acquired after November 20, 2018 that become available for use before 2028, subject to a phase-out for capital investments available for use after 2023.
The example below provides a comparison of the CCA available under the current rules and the proposed accelerated investment incentive rules. Assume a business acquires a passenger vehicle that is considered a class 10 asset and was acquired for $10,000 on December 1, 2018.
| Current Rules | Proposed Rules | |
|---|---|---|
| Cost of property acquired | $10,000 | $10,000 |
| 1/2 year rule | $5,000 | Not applicable |
| Cost subject to CCA | $5,000 | $10,000 |
| CCA rate | 30% | 30% |
| Regular CCA | $1,5001 | $3,0002 |
| Accelerated CCA | Not applicable | $1,5003 |
| Total CCA deduction in year of acquisition | $1,500 | $4,500 |
After the year of acquistion, the CCA would be computed as the undepreciated tax cost of the capital investment multiplied by the prescribed rate applicable to that capital investment (30 per cent in the above example). The Accelerated Investment Incentive will not change the total CCA amount that can be deducted over the life of the capital investment. However, the larger deduction taken in the first year will generally result in smaller CCA deductions in future years.
2. Medical Expense Tax Credit for Cannabis
With the legalization of cannabis, the Canada Revenue Agency (CRA) has provided guidance regarding the requirements that must be met to claim the cost of cannabis as a medical expense tax credit.
According to the CRA, if the patient is authorized to possess marijuana, marijuana plants or seeds, cannabis or cannabis oil for their own medical use under the Access to Cannabis for Medical Purposes Regulations (ACMPR) or section 56 of the Controlled Drugs and Substances Act (CDSA), the cost of these products purchased under ACMPR or CDSA could be eligible for the medical expense tax credit.
The CRA further commented that costs related to medical services provided in conjunction with the supply of marijuana are eligible for a medical expense tax credit if the medical services are provided by an authorized medical practitioner. The listing of authorized medical practitioners for the purposes of the medical expense tax credit can be found here.
Devices or equipment prescribed by a medical practitioner with regards that are used to consume cannabis could qualify as a medical expense tax credit if it is included in the prescribed list by the CRA. The list can be found here.
3. Sale of a Principal Residence
Prior to 2016, the CRA did not require the seller to report the disposition of a principal residence if he or she was claiming the principal residence exemption. For 2016 and subsequent years, the disposition of a principal residence must be reported on the seller’s personal tax return regardless of whether or not the gain is fully sheltered by the principal residence exemption.
Failure to report the disposition could result in the CRA reassessing the return outside the normal reassessment period. Generally the normal reassessment period is three years from the date of the notice of assessment.
The CRA has indicated that it will accept a late filed principal residence designation in certain circumstances, but a penalty may apply which is the lesser of the following amounts
- $8,000; or
- $100 for each complete month from the original due date to the date the request was made in a form satisfactory to the CRA.
4. Elimination of Employee Home Relocation Loan Deduction
Interest-free or low interest loans made by an employer to an employee to assist with acquiring a residence in the new employment location could result in an interest benefit. Prior to 2018, a home relocation loan deduction was available to offset the interest benefit. However, for 2018 and subsequent years, the home relocation loan deduction was eliminated. More information can be found here.
For more information on these changes or any other issues with the 2019 tax filing season, contact a member of the Crowe Soberman Tax team.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.
1 ($10,000 x 50%) x 30%
2 $10,000 x 30%
3 $3,000 x 50%
