Immediate Expensing for CCPCs

Capital Assets

Immediate Expensing Rules – Delays in implementing

In the last Federal Budget, the government announced proposals to allow the immediate expensing of certain capital assets acquired after April 19, 2021 (see Immediate expensing – How the rules work for more details below).

However, CRA has advised that their system is not yet capable of processing this deduction and that tax preparation software programs should not calculate such amount. Their position is based on the fact that the legislative proposals have not yet been presented to the House of Commons by the Minister of Finance. As such, CRA will not accept any amount deducted under this Budget proposal until such time has come, which could be at least a few of months away. Since Quebec and Alberta governments also announced that they would harmonize their legislation with this measure, this also applies to provincial tax filings.

As such, taxpayers should continue to deduct the normal amount of capital cost allowance (CCA) permitted prior to the Budget announcement until draft legislation is presented to the House (i.e. no immediate expensing). Hopefully, CRA will be lenient in allowing taxpayers to amend tax returns to include immediate expensing for any additions acquired after April 19, 2021 (or whatever date is included in the new legislation). Taxpayers normally have 90 days from the date of the original notice of assessment to object/make changes to their tax return. Although CRA administratively allows taxpayers to make changes to tax years that are not statute-barred (i.e. 3 years from original date of assessment), they do not allow amendments relating to discretionary deductions (such as CCA) if the adjustment results in a change in tax. Given the circumstances of the delay in the implementation of these rules, we are hopeful that CRA will allow changes to tax returns outside the regular 90-day period. When we have more details, we will pass them along.

Caution should be exercised if your business is making capital asset acquisitions mainly to take advantage of the immediate expensing rules. There is no guarantee that the legislation will be passed given the minority government; there is also a risk that the proposed implementation date of April 19 could change to a later date.

Immediate expensing – How the rules work

The 2021 Federal Budget proposed a temporary measure which allows for the immediate expensing of certain properties acquired by a Canadian-Controlled Private Corporation (CCPC) for income tax purposes. This measure is available for eligible properties acquired on or after April 19th 2021 and became available for use before January 1st 2024. With respect to the term “eligible property” under this measure, this generally refers to capital properties that are subject to the CCA rules with the exception of properties included in classes 1 to 6, 14.1, 17, 47, 49 and 51.

The immediate expensing is only available in the year the properties became available for use and the maximum eligible amount per year is $1.5 million. This maximum is shared amongst all associated members of a group of CCPCs and no carry forward of any unused capacity is allowed. The eligible amount is also prorated for corporations with a taxation year that’s shorter than 365 days and the half year rule is suspended when this measure applies.

In situations where the CCPC, or a group of CCPCs, acquired more than $1.5 million of eligible property in a given taxation year, the relevant corporations may decide which CCA class the immediate expensing will be assigned to, and any excess capital properties not covered by the $1.5 million designation will be subject to the normal CCA rules.

Any property that has been used, or acquired for use for any purpose before it was acquired by the taxpayer is only eligible for the immediate expensing 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

Author: Anni Zhu
Position: Senior Mananger

Author: David Zheng
Position: Senior Staff Accountant