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On April 19, 2021, the government announced new rules allowing for immediate expensing (100% write off in the year of purchase) of up to $1.5 million of capital asset purchases per year. These rules finally became law in June 2022, allowing CRA to start assessing immediate expensing claims.
For Canadian controlled private corporations (CCPCs), purchases acquired and available for use from April 19, 2021 to December 31, 2023 qualify. These rules were expanded to unincorporated businesses operated by individuals and partnerships (but not trusts) for property acquired and available for use from January 1, 2022 until December 31, 2024.
Associated businesses (including corporations, unincorporated businesses, and partnerships) will have to share the $1.5 million annual limit among the businesses in the group.
An Eligible Person or Partnership (EPOP) is:
What property qualifies for immediate expensing?
Designated Immediate Expensing Property (“DIEP”) generally includes all depreciable capital property, other than property included in Capital Cost Allowance (CCA) classes 1 to 6, 14.1, 17, 47, 49 and 51. These exceptions generally pertain to long lived assets, such as buildings and certain structures, and unlimited life intangibles including goodwill.
Existing enhanced CCA deductions, such as the full expensing of manufacturing and processing machinery and equipment and Accelerated Investment Incentive Property (1.5 times the normal CCA rate in the first year), continue to be available and do not impact the $1.5 million limit.
In addition, DIEP must meet EITHER of the following conditions:
Limitations on deduction:
The maximum deduction is equal to the lesser of:
Existing rules restricting CCA (leasing property rules, rental property rules, specified energy property rules, etc.) continue to apply.
Associated persons and partnerships:
The immediate expensing annual limit of $1,500,000 must be allocated amongst the associated persons and partnerships. For this purpose, individuals and partnerships are deemed to be corporations when evaluating whether they are associated with other businesses.
Trade-ins and Disposals
If an asset is bought and sold in the same taxation year the property will not qualify as a DIEP. However, if a capital asset purchased in a previous year is traded in towards the price of a new property, the full gross purchase price is eligible for immediate expensing. A DIEP only earns that title in the year that it is purchased, so a disposal of that property in a subsequent taxation year is not a disposal of DIEP. Be careful on your CCA schedule when recording disposals!
Normally, the CCA recapture and terminal loss rules do not apply to passenger vehicles included in CCA Class 10.1 (passenger vehicles that cost over $34,000). However, if the vehicle has been designated as immediate expensing property, special rules apply such that recapture will most likely be triggered on a disposal. Now, the taxpayer must track if immediate expensing was used for each Class 10.1 vehicle in a previous year. Such recapture could cause an unexpected income inclusion, because each Class 10.1 asset is included in a separate CCA pool and the cost of a new vehicle does not replenish the old pool.
Matters to consider when using immediate expensing
Immediate expensing and CCA are optional deductions from CRA’s perspective.
For more information, please contact your Versatile Accounting Advisor.
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