2018 Fall Economic Statement Tax Measures

Posted
January 2, 2019
in

The 2018 Fall Economic statement issued by Bill Morneau on November 21, 2018, proposes amongst others, tax measures for businesses to immediately deduct the costs of certain types of equipment and machinery, as well for companies to deduct a larger share of newly acquired assets.

Highlights from the statement include introductions for the following measures:

  1. The Accelerated Investment Incentives
  2. Immediate deductions for newly-acquired manufacturing and processing (M&P) equipment, as well as specified clean energy equipment
  3. Plans for investing in middle class jobs for continued growth of the economy

These tax measures appear to be a response to the United States’ recent corporate tax changes for improved competitiveness.

Accelerated Investment Incentive

Accelerated Investment Incentives (AII) were introduced to allow Canadian businesses to deduct investment costs at a faster rate and encourage further capital investments.

Pursuant to the new AII, Capital Cost Allowance (“CCA”)will be calculated by applying the prescribed CCA deduction rate to a class to one-and-a-half times the net addition to that CCA class for the year. This CCA deduction is subject to a maximum amount of 100%. The AII effectively suspends the half-year rule and provides CCA deductions up to three times the first-year maximum.

AII seeks to increase first year CCA deductions for any “eligible property” starting November 20, 2018 and is available to be used before 2028. Incentives apply to all capital property subject to the CCA. In cases of shorter tax years, the amount of CCA claimed will be prorated - and follow existing rules. There will also be no ability to claim enhanced deductions the next year.

To be eligible for the AII, property cannot have been previously owned by the taxpayer, any taxpayer non-arm’s length to the taxpayer or received on a tax deferred “rollover” basis.

Note that the AII CCA deductions must be made in the first year the eligible property is available for use. Enhanced deductions will not be available in later years.

Learn More about AII Allowances, Deductions & Restrictions

Manufacturing and Processing (M&P) Equipmentand Clean Energy Equipment

The AII does not apply to property used in manufacturing and processing and clean energy equipment. These assets will be eligible to be fully expensed in the year of acquisition where the asset is available for use before 2024. Purchases in years 2024 through 2027 will be subject to a phase-out enhanced CCA rate:

Proposed First Year Enhanced CCA %
Nov.20/18 to 2023100
202475
202575
202655
202755
2028 and thereafter-

Investing in the Middle Class

In its statement, in addition to improving competitiveness and clean technology investments, the government also outlines plans for the continued growth of the middle class and economy. They’ve proposed to provide over $800 million for the Strategy Innovation Fund to support innovative investments, starting an export diversification strategy to improve overseas exports, modernizing federal regulations to help businesses grow, advancing pay equity for women and lowering trade barriers within Canada.

For Deeper Insights into the 2018 Economic Statement - Contact Bateman MacKay

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