Accelerated Capital Cost Allowance (ACCA) is a tax incentive that allows businesses to depreciate their assets at a faster rate than the normal Capital Cost Allowance (CCA) rates. This is done to encourage investment in specific types of assets, such as machinery, equipment, or green technology, by providing larger upfront tax deductions.
Key Features of ACCA:
1. Faster Depreciation:
Under ACCA, businesses can claim a higher percentage of an asset's cost as a CCA deduction in the early years, compared to the standard CCA rates. This provides a quicker tax write-off for the asset.
2. Temporary Incentive:
ACCA is typically introduced as a temporary measure by the government to stimulate economic activity or investment in particular industries. These measures may be phased out or adjusted over time.
3. Specified Assets:
ACCA is usually applied to specific types of assets, such as clean energy equipment, manufacturing machinery, or digital technologies, depending on the policy goals.
4. Tax Deferral:
ACCA allows businesses to defer taxes by claiming larger deductions in the earlier years of an asset's life, reducing taxable income sooner. Over time, the business still depreciates the full cost of the asset, but the timing of the deductions is front-loaded.
Example:
1. Standard CCA:
A business purchases equipment for $10,000 that falls under Class 43, with a standard CCA rate of 30%. Normally, the business could deduct $3,000 ($10,000 × 30%) in the first year.
2. ACCA Example:
With an accelerated rate, the business might be allowed to claim 100% of the asset's cost as a deduction in the first year, instead of spreading it over multiple years. In this case, the business could deduct the full $10,000 in the first year, significantly reducing its taxable income for that year.
Government Policy:
Governments often introduce ACCA in response to economic conditions, such as downturns or to promote innovation in key sectors like manufacturing or green energy.
For more information, please visit the Canada Revenue Agency:
Canada Revenue Agency
