Measures from the Fall Economic Statement
In its November 21, 2018, Fall Economic Statement, the government announced several income tax measures.
Accelerated Investment Incentive
The Accelerated Investment Incentive was introduced to allow businesses in Canada that acquire capital property on or after November 21, 2018, but before 2028, to be eligible for an enhanced first-year CCA deduction. This incentive will not apply to Classes 53, 43.1, and 43.2, which will instead be eligible for full expensing as discussed below.
To qualify for the incentive, the property cannot have been previously owned by the taxpayer or a non-arm’s-length person, nor can it be transferred to the taxpayer on tax-deferred “rollover” basis.
In the year that a capital asset becomes available for use, the taxpayer will be able to deduct three times the CCA that would have been deductible in the absence of this measure. The mechanics to achieve this result entail the suspension of the half year rule and the application of 1.5 times the CCA rate that would have otherwise applied (i.e., twice the CCA base multiplied by 1.5 times the CCA rate is equal to 3 times the CCA deduction). The larger deduction in the first year is ultimately offset by smaller deductions in the future years.
This measure will be phased out for capital assets that become available for use after 2023, as follows.
For capital property that would normally be subject to the half-year rule and becomes available for use between 2024 and 2027, the half-year rule will still be suspended, but the normal CCA rate will apply. The result is twice the CCA deduction in the first year.
For capital property that would not normally be subject to the half-year rule, the enhanced CCA deduction will be equal to 1.25 times the normal first year deduction.
Full expensing for manufacturing and processing equipment
Canadian businesses will be able to deduct 100 per cent of the cost of machinery and equipment acquired on or after November 21, 2018, that is used to manufacture and process goods in Canada.
A phase-out will begin for assets that become available for use in 2024, where the first-year deduction is reduced to 75 per cent. In 2026, the first-year deduction is further reduced to 55 per cent. For assets that become available for use after 2027, this measure will not apply.
To qualify for the enhanced write-off, the asset cannot have been previously owned by the taxpayer or a non-arm’s-length person, nor can it be transferred to the taxpayer on tax-deferred “rollover” basis.
Full expensing for clean energy equipment
Specified clean energy equipment acquired on or after November 21, 2018, will be eligible for a 100 per cent deduction in the year that the asset becomes available for use in a business.
This measure will phase out in the exact same manner as the phase-out of the full expensing for manufacturing and processing equipment discussed above.
To qualify for the enhanced write-off, the asset cannot have been previously owned by the taxpayer or a non-arm’s-length person, nor can it be transferred to the taxpayer on a tax-deferred “rollover” basis.
