End of CCA Immediate Expensing Benefit

Canadian businesses have been enjoying the benefits of immediate expensing of certain types of depreciable assets since 2021. However, this temporary measure is coming to an end soon. As of December 31, 2023, eligible depreciable assets acquired and put into use in the business will no longer be eligible for immediate expensing. This means that businesses will have to revert to the traditional capital cost allowance (CCA) system for tax purposes. In this blog post, we will explore the implications of this change and what it means for Canadian businesses.

Understanding the Immediate Expense Benefit

The Canadian government introduced immediate expensing of certain types of depreciable assets in 2021 as a temporary measure to encourage investments by small and medium-sized Canadian businesses and thereby accelerate the economic recovery while supporting productivity growth in the longer term. The enhanced deduction is not limited to specific sectors and is meant to free up capital for businesses to invest in assets that drive growth. This measure does not change the total amount of Capital Cost Allowance (CCA) that may be claimed in respect of an asset. Instead, it accelerates the rate at which CCA can be claimed on eligible property, up to a maximum amount of $1.5 million per taxation year, therefore reducing the taxable income.

General Rules of Immediate Expensing

Eligible property would be capital property that is subject to the capital cost allowance (CCA) rules, except long-lived assets included in CCA classes 1 to 6, 14.1, 17, 47, 49, and 51.

The benefit is available for “eligible property” acquired by a CCPC on or after April 19, 2021, and that becomes available for use before January 1, 2024, up to a maximum amount of $1.5 million per taxation year. In the case of a Canadian-resident individual or a partnership where all the members are individuals, the eligible property is required to have been purchased after December 31, 2021 and become available for use before January 1, 2025. In the case of a partnership where not all members are individuals, the eligible property is required to have been purchased after December 31, 2021 and become available for use before January 1, 2024.

The immediate expensing would only be available for the year in which the property becomes available for use.

Immediate expensing would generally only be available on eligible property that:

Was neither previously owned by the taxpayer or a non-arm's length person.

Has not been transferred to the taxpayer on a tax-deferred rollover basis.

CCPCs with eligible property in a taxation year that exceed $1.5 million are allowed to decide to which CCA class the immediate expensing would be attributed and any excess capital cost would be subject to the normal CCA rules.

The $1.5 million limit would be shared among associated members of a group of CCPCs.

CCPCs with less than $1.5 million of eligible capital costs, are not allowed to carry-forward excess capacity.

The $1.5 million limit would be prorated for taxation years that are shorter than 365 days.

The “Half-Year” rule is suspended under immediate expensing.

Let’s look at an example. Assume ACME Corporation acquired four asset classes after April 2021 with the following breakdown:

CCA Class (%)	Cost of Eligible Asset	Immediate Expensing	First-Year Allowance on Remainder	Total First-Year Allowance	Current First-Year Allowance
Class 7 - 15%	$2,000,000	$1,000,000	$225,000*	$1,225,000	$450,000
Class 10 - 30%	$2,000,000	$500,000	$675,000**	$1,175,000	$900,000
Class 50 - 55%	$1,000,000	-	$825,000***	$825,000	$825,000
Total	$5,000,000	$1,500,000	$1,725,000	$3,225,000	$2,175,000

*) $1,000,000 remainder multiplied by 15% multiplied by 1.5 under the Accelerated Method

**) $1,500,000 remainder multiplied by 30% multiplied by 1.5 under the Accelerated Method

***) $1,000,000 remainder multiplied by 55% multiplied by 1.5 under the Accelerated Method.

Now let’s consider the same set of assumptions for a class 7 asset purchased on April 1, 2024, at the cost of $2,000,000. What would be the first-year allowance in this scenario?

In this scenario, the Half-year remains suspended for the class 7 asset. We will then apply the prescribed CCA rate for the class to up to one-and-a-half times the net addition to the class for the year. In this case the CCA rate is 15%. Enhanced First-Year Allowance will be calculated by multiplying the CCA rate by the cost of the asset, or $2,000,000, then multiplied by 1.5. Therefore, the enhanced first-year allowance for your Class 7 asset would be $450,000.

For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca