Canada: What Do The Proposed Changes For The Taxation Of Eligible Capital Property Mean?

The 2016 Federal Budget announced a proposal to repeal the existing eligible capital property ("ECP") regime and replace it with a new regime that will treat ECP as depreciable property. A new capital cost allowance ("CCA") class will be introduced specifically for ECP. These changes come into effect January 1, 2017.

What will this new eligible capital property regime mean for you, what are its noteworthy effects and what are the planning opportunities that you should consider?


ECP is generally considered a capital expenditure to acquire rights or benefits of an intangible nature for the purpose of earning income from a business.

Some of the more common examples of ECP include goodwill, customer lists, unlimited life licenses, franchise rights, trademarks, and some patents. Certain expenditures related to incorporation, reorganizations, or an amalgamation may also qualify as ECP.


Under the existing rules, when an expenditure is made to acquire ECP, 75 per cent of the expenditure is added to the cumulative eligible capital ("CEC") pooled account. The balance of the CEC account is amortized on a declining balance basis, which may be deducted at a maximum rate of seven per cent per annum. The annual amount of deductible amortization is referred to as the cumulative eligible capital amount ("CECA").

When ECP is sold for proceeds in excess of the pooled account cost, the excess is considered a gain and 50 per cent of the gain is taxable at active business tax rates. If the taxpayer is a corporation, 50 per cent of the gain is added to its capital dividend account ("CDA") on the first day of the next fiscal period. The CDA can be distributed to a shareholder on a tax-free basis. In addition, any previously claimed CECA may be required to be recaptured by including it in income and subject to tax at active business tax rates in the year the ECP assets are sold.


Under the new rules, 100 per cent of the cost of ECP acquired on or after January 1, 2017 will be added to a new capital asset class for tax purposes (Class 14.1) and will be subject to the current depreciable capital property regime. The CCA depreciation rate for Class 14.1 will be five per cent per annum on a declining balance basis. Class 14.1 will follow all of the rules generally applicable to other CCA classes such as recapture, terminal losses, depreciation, and the "half-year" CCA rule in the year the intangible asset is acquired.

When ECP acquired after January 1, 2017 is sold for proceeds in excess of the original cost of all the assets added to Class 14.1, a capital gain will be realized. The gain will be subject to tax at capital gains rates, rather than active business tax rates. For Canadian controlled private corporations in Ontario, the gain will be taxed at a rate of 25 per cent rather than a rate that could potentially be as low as 7.5 per cent under the current rules. This change is intended to eliminate the significant income tax deferral that was otherwise available under the existing ECP regime. If the taxpayer is a corporation, 50 per cent of the gain on ECP will be added to its CDA the day after the sale.


CEC Balances

Existing CEC account balances will be transferred to new Class 14.1 as of January 1, 2017. The opening balance of new Class 14.1 will be equal to the closing CEC balance at December 31, 2016.

Depreciation Rates

Over the next 10 years (January 1, 2017 – December 31, 2026), ECP expenditures incurred prior to January 1, 2017, which have been transferred to Class 14.1 on January 1, 2017, will continue to be depreciated at seven per cent per annum. After 10 years, these expenditures will be depreciated at five per cent per annum. Any new ECP purchased on or after January 1, 2017 will be depreciated at five per cent per annum, subject to the "half year" rule in the year the asset is acquired.

Depreciation Rates by Year


1) Crystalizing an eligible capital property gain

If a corporate sale of assets will likely take place in the next few years, and the proceeds from the sale would not be required by the individual shareholder(s), then prematurely recognizing any goodwill/ECP gain prior to the end of 2016 should be considered. A gain can be realized by transferring the goodwill/ECP and/or all of the business to a new subsidiary or sister corporation.

Triggering the gain would result in immediate corporate income taxes, but to the extent a portion of the proceeds would not otherwise be required by the individual shareholder(s), there would be an indefinite income tax deferral of up to 39 per cent of the amount retained in the corporation. This deferral opportunity will not exist under the new regime as the corporate income tax on the goodwill/ECP gain will be significantly higher.

2) Clearing shareholder loan/extracting cash from a corporation

Realizing a gain on goodwill/ECP can also be a tax efficient way of clearing a shareholder loan account or extracting cash from a corporation. 50 per cent of a goodwill/ECP gain is added to the corporation's CDA account. This amount can be paid on a tax-free basis to an individual shareholder on the first day of the next fiscal period. Realizing the goodwill/ECP gain prior to the implementation of the changes on January 1, 2017 will result in less corporate income taxes when utilizing such a plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
Crowe MacKay LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
Crowe MacKay LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions