Imminent Closure of $1.5 Million in Immediate Expensing

Canadian Controlled Private Corporations (CCPCs) will soon lose the ability to immediately expense the full cost of up to $1.5 million in eligible property.

As announced in the 2021 Federal Budget, the Federal Government approved a temporary measure allowing for 100% immediate expensing of up to $1.5 million of eligible property. Such expensing is accomplished through the Capital Cost Allowance (CCA) claim in a tax return. The window for this immediate expensing will be ending shortly as the property must become available for use before January 1, 2024. It is imperative to understand the nuances of this program and evaluate its impact on your organization's tax liability.

Key Features

• CCPCs can expense capital property acquired from April 19, 2021, provided the capital asset is available for use before January 1, 2024.
  • This date is extended until January 1, 2025, for individuals and Canadian partnerships where all members are individuals.
• The immediate expensing limit is $1.5 million/year, shared amongst associated corporations.
• Includes most depreciable capital property.
  • Excludes property in CCA classes 1 to 6, 14.1, 17, 47, 49, and 51 (e.g., buildings, certain structures, goodwill).
• Property should not have been previously owned by the taxpayer or a related party.

While this provision does not alter the overall amount of CCA that may be claimed, it does accelerate the rate at which it can be claimed. Immediate expensing provides rapid tax relief by reducing the current year's tax liability. To capitalize on this favourable tax treatment, evaluate your present and upcoming machinery, equipment, and clean energy needs. Consult with a tax advisor to understand potential tax benefits and make the necessary investments while the program is active. It is vital to ensure the depreciable capital property is available for use by January 1, 2024, and to maintain thorough documentation, including invoices and related agreements in the event of potential CRA audits. For more details, refer to the official Canada.ca announcement.

Conclusion

The window of opportunity to leverage the expanded tax relief for business investments is narrowing and immediate action is required to capitalize on this program’s benefits. For questions related to tax implications of immediate expensing or other business advisory, tax and accounting matters, reach out to a Bateman MacKay Business Advisor.