Over the last number of years there have been many revisions to the capital cost allowance regime by both the federal and Quebec tax departments.

Part 1 below reviews federal changes.  Part 2 will review Quebec changes.

November 2018 Economic Statement

Back in 2018, the Government of Canada’s Fall Economic Statement introduced two measures, a) 100% depreciation in the year of acquisition of manufacturing and processing equipment qualifying for inclusion in Capital Cost Allowance (CCA) class 53 and clean energy equipment qualifying for inclusion in either of CCA classes 43.1 and 43.2 and b) the Accelerated Investment Incentive (AII) which provides for enhanced first year’s capital cost allowance for all other acquisitions of depreciable property.

These two measures were slated to be temporary measures and were effective for eligible property acquired after November 20, 2018, scheduled to being phased out in 2024 and to be totally phased out after 2027. All eligible properties must have been acquired and available for use before 2028.

Full expensing for manufacturing and processing machinery and equipment (M&P)

The following table is a summary of the new rates for eligible M&P property acquisitions:

Full expensing of the cost of specified clean energy property

The following table is a summary of the legislative changes for eligible clean energy property acquisitions:

Accelerated Investment Incentive

CCA on property qualifying for the AII has been allowed to claim an enhanced CCA deduction and the CCA half-year rule has been suspended.  The amount of the enhanced deduction will result in CCA claims ranging from 3 times the normal deduction to 1.25, depending on the year of acquisition.

The following table is a summary of first year CCA available for property falling under the AII regime depending on the year of acquisition.

Federal Legislative changes in 2021

In 2021, the Government of Canada’s Federal Budget proposed a temporary measure for Canadian-controlled private corporations (CCPCs), unincorporated business and certain eligible partnerships allowing them to immediately expense up to $1.5 million of eligible property acquisitions.  The $1.5 million deduction is to be shared between members of an associated group which include CCPCs and members of a partnership.

The changes apply to eligible property acquired by a CCPC after April 18, 2021 and made available for use before January 1, 2024.

For all other taxpayers, these changes apply to eligible property acquired on or after January 1, 2022 and made available for use before January 1, 2025.

Eligible Property

The new measure includes most classes of depreciable property acquired except for the following:

• CCA classes 1 to 6, 14.1, 17, 47, 49 and 51;
• Property that was neither previously owned by the taxpayer or by a person not dealing at arm’s length with the taxpayer;
• Property that was not transferred to the taxpayer by means of a tax-deferred rollover basis.

Interaction with 2018 Legislative Rules

For eligible property acquisitions made after April 18, 2021, both the 2018 and 2021 legislative changes are in effect.

The $1.5 million immediate expensing limit does not prohibit taxpayers from claiming accelerated CCA and immediately expensing eligible manufacturing and processing equipment and clean energy equipment for eligible property acquired after April 18, 2021 and made available for use before January 1, 2025.

Careful planning should be considered when allocating the $1.5 million expense limit amongst an associated group in order to maximize the full CCA deduction on eligible property acquisitions while also benefiting from the 2018 rules.

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