Tax Planning Regarding Immediate Expensing of Capital Property

Tax Planning Regarding Immediate Expensing of Capital Property

The 2021 Federal Budget announced proposed changes allowing Canadian Controlled Private Corporations (CCPCs) temporary immediate deductions on eligible property. Under this change, a CCPC can deduct 100% of capital outlays on the eligible property acquired on or after April 19, 2021 and that is available for use before the 2024 calendar year, that would otherwise qualify for capital cost allowance (CCA) over a number of years. Note that draft legislation is still pending for this measure.

There are limitations in terms of what class of capital property, how much and when the capital property can be claimed. Eligible property includes any capital property subject to the CCA rules except for the following CCA Classes:

  • Classes 1-6 – Various building types
  • Class 14.1 – Intangibles/goodwill
  • Class 17 – Roads, parking lots, sidewalks, storage areas or similar surface construction
  • Class 47 – transmission or distribution equipment of electrical energy
  • Class 49 – property that is a pipeline, including control/monitoring devices, valves and other equipment ancillary to the pipeline for transmission of petroleum
  • Class 51 – property that is a pipeline, including control and monitoring devices, valves and other equipment ancillary to the pipeline, used for the distribution of natural gas

The threshold imposed on the immediate deduction is $1.5M for a corporation and its associated CCPCs (if applicable) per tax year. The $1.5M limit is also prorated for short taxation years.

When allowable expenditures exceed the $1.5M limit in the given tax year, CCPCs are allowed to elect which CCA asset class to apply the immediate deduction to. Any leftover capital costs in excess of the limit are subject to regular CCA rules. On the other hand, if there is any unused portion of the annual limitation remaining at the end of the tax year, it cannot be carried forward into future tax years. When an asset is subject to immediate deduction, the half-year rule does not apply.

The ruling is also restricted by any pre-existing CCA deduction rules, rules related to limited partners, specified leasing properties, specified energy properties and rental properties. These rules can potentially restrict the allowable CCA deduction.

Property would be eligible for immediate expensing even if it has been used before, or acquired for use for any purpose before the acquisition by the taxpayer if the both the following conditions are met:

  1. Neither the taxpayer nor a non-arm’s length person previously owned the property; and
  2. The property has not been transferred to the taxpayer on a tax-deferred “rollover” basis

Source: https://www.budget.gc.ca/2021/home-accueil-en.html Pages 614-616

Testimonial from Lynn LaHam - CPA, CGA, Crossroads Children’s Centre

Hendry Warren is a very professional organization who are very sensitive to client needs and timelines. Marie Fraser and all of the staff that I have met and worked with exhibit the same degree of courtesy and professionalism. It is always a pleasure working with them.

Lynn LaHam ( CPA, CGA, Crossroads Children’s Centre)
Testimonial from Chris Jerome, Treasurer - Habitat for Humanity – National Capital Region

Hendry Warren LLP has been easy to work with, dependable, personable and professional and are always available when we need them. The annual audit process is efficient and timely and their staff is always knowledgeable and well prepared.

Chris Jerome, Treasurer (Habitat for Humanity – National Capital Region)
Testimonial from Don Silverman - CFO Sciemetric

From the partners to the new graduates, the quality of service and advice were second to none…we rely heavily on the advice we are given from both an audit and tax perspective…I know that our firm can count on Hendry Warren LLP to be accurate, timely and professional at all times.

Don Silverman (CFO Sciemetric)
Testimonial from Gordon Miller - President, UNIGLOBE Premiere Travel

In every instance where advice or assistance has been needed it has been provided with clarity and timeliness. And with a very satisfactory outcome. Our accounting staff have always appreciated the efficiency of Hendry-Warren team assigned to our audits and review engagements. We appreciate that Hendry-Warren LLP is able to support our needs as a paperless group of companies.

Gordon Miller (President, UNIGLOBE Premiere Travel)
Testimonial from Les Bell, - CPA, CA, President, Lincoln Heights Ford Sales Ltd.

Ian Hendry is a truly responsive and responsible partner in our business and has been for over 20 years. I would (and have) recommend his services to everyone.

Les Bell, (CPA, CA, President, Lincoln Heights Ford Sales Ltd.)
Testimonial from Colin Goodfellow -

I have used Marie Fraser and her team at Hendry Warren for business, personal and special projects. Deep enough bench strength to cover anything, and small enough to pay attention.

Colin Goodfellow ()
Testimonial from Rupert Bonham-Carter -

Jacob has been invaluable over the past 18 months in assisting with the incorporation and start-up of my new business venture. I trust Jacob's advice on complicated income tax and HST matters to allow me to focus on what is most important - my business!

Rupert Bonham-Carter ()
previous arrowprevious arrow
next arrownext arrow
PlayPause

Interested in Working with HWLLP?

How can we help you achieve your business and financial goals?

Share a few details and we'll schedule a call!

Request a Call