Canada: 2018 Fall Economic Update

Last Updated: November 27 2018
Article by John Oakey

The single tax measure introduced in the 2018 fall economic update was accelerated capital cost allowance for eligible property.

What is capital cost allowance?

Depreciable property is not allowed to be deducted as a current expense. Instead, the capital cost of the depreciable property is added to a capital cost allowance class and deducted over several years based on the CCA rate of that class. This annual deduction is called capital cost allowance (CCA for short) and is analogous to depreciation.  

The CCA allowed in the first year that a taxpayer's capital property is available for use is generally limited to half the amount that would otherwise be available in respect of that property (the "half-year rule"). This rule applies to the net addition to the class for the year (i.e., the amount by which acquisitions exceed dispositions).

Accelerated capital cost allowance

The accelerated capital cost allowance is available in three separate categories:

  1. Accelerated Investment Incentive (increase in first year allowance),
  2. Manufacturing and processing machinery and equipment (full expensing), and
  3. Clean energy equipment (full expensing)

Accelerated Investment Incentive (increase in first year allowance)

The Accelerated Investment Incentive will provide an enhanced first-year allowance for capital property that is subject to the CCA rules. This first-year enhanced allowance does not include capital property included in categories 2 or 3. The first-year enhanced allowance is also subject to legislation contained in the Income Tax Act and Income Tax Regulations that will restrict the CCA deduction for specific situations such as: limited partners, specified leasing properties, specified energy properties and rental properties.

The enhanced allowance is equal to the following:

  • Property currently subject to the half-year rule will qualify for an enhanced CCA equal to three times the normal first-year allowance,
  • Property not currently subject to the half-year rule will qualify for an enhanced CCA equal to one and a half times the normal first year allowance.

Here is an example provided by Department of Finance:

Prior to the introduction of the Accelerated Investment Incentive, a property in Class 8, which has a prescribed rate of 20 per cent, would be eligible for CCA of 10 per cent of the cost of the property in the year it becomes available for use, due to the half-year rule. Under the Accelerated Investment Incentive, the taxpayer will be eligible for CCA of 30 per cent of the cost of the property—that is one-and-a-half times the CCA calculated using the prescribed rate of 20 per cent or three times the 10-per-cent CCA that could otherwise be claimed in the first year. 

The total amount of depreciation (CCA) that can be taken over the useful life of the eligible property does not change with the accelerated investment incentive. The only change is the timing of the CCA, resulting in a higher amount of CCA taken in the first-year, reducing the overall CCA available to be taken in subsequent years.

Application and phase-out

The Accelerated Investment Incentive is available for a limited time only. It applies to eligible property that is acquired after November 20, 2018 and that becomes available for use before 2028, subject to a phase-out for property that becomes available for use after 2023.

The phase-out period for acquisitions that become available for use after 2023 but before 2028 results in a reduced enhanced first-year allowance as follows (see chart below):

  • Property currently subject to the half-year rule will qualify for an enhanced CCA equal to two times the normal first-year allowance,
  • Property not currently subject to the half-year rule will qualify for an enhanced CCA equal to one and a quarter times the normal first year allowance

Manufacturing and processing machinery and equipment (full expensing)

Machinery and equipment used in Canada primarily in the manufacturing or processing of goods for sale or lease already have a temporary accelerated CCA rate of 50 per cent under Class 53. This temporary provision applies to acquisitions after 2015 and put into use before 2026. Without this temporary measure, the machinery and equipment would be included in Class 43 and qualify for a CCA rate of 30 per cent.

This new measure allows the same machinery and equipment to have an enhanced first-year allowance equal to 100 per cent (full deduction in year available for use). This enhanced first-year allowance applies to property acquired after November 20, 2018 and becomes available for use before 2028.

Clean energy equipment (full expensing)

Specified clean energy equipment already has two temporary accelerated CCA rates. 30 per cent under Class 43.1 for acquisitions after February 21, 1994 and 50 per cent under class 43.2 for acquisitions after February 22, 2005 and before 2025. Many of these assets would normally be depreciated at lower rates of 4, 8 or 20 per cent, but can be depreciated at either 30 or 50 per cent if they qualify as clean energy equipment defined in the Income Tax Regulations.

This new measure allows the same clean energy equipment to have an enhanced first-year allowance equal to 100 per cent (full deduction in year available for use). This enhanced first-year allowance applies to property acquired after November 20, 2018 and becomes available for use before 2028.

These enhanced allowances for manufacturing and processing and clean energy will be phased-out after 2023 with full elimination after 2027 (see chart below):

Certain additional restrictions will be placed on property that is eligible for the Accelerated Investment Incentive. Property that has been used (or acquired for use) for any purpose before it is acquired by the taxpayer will be eligible for the Accelerated Investment Incentive only if both of the following conditions are met:

  • neither the taxpayer nor a non-arm's-length person previously owned the property; and
  • the property has not been transferred to the taxpayer on a tax-deferred "rollover" basis.

As 2018 is quickly narrowing to a close, it would be prudent to review your capital asset acquisition plan with the possible intention of accelerating the purchase of eligible assets and gain access to additional current deductions through enhanced CCA. Remember that the acquired property must be available for use before the end of the current fiscal period in order to gain access to CCA in the same period.

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 Mondaq.com.

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

Authors
John Oakey
Similar Articles
Relevancy Powered by MondaqAI
Crowe Soberman LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Crowe Soberman LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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