However, this tax break is immediate, which means you should use it as soon as you can.
Immediate expensing is available to CCPCs (Canadian-controlled private corporations), which generally means a corporation that is not publicly tied or controlled by non-residents. Partnerships where all members were either a CCPC or resident of Canada and an individual (of a sole proprietorship) that are Canadian residents are also eligible. While the new immediate expensing rules applied as of April 19, 2021, the government only recently gave specifics on how they would work.
immediate expensing eligibility
To be eligible for immediate expensing, the property must be eligible for capital cost allowance (CCA). The deduction, however, does not apply to assets that are considered long-living, such as:
To be eligible for immediate expensing, the property needs to meet one of two criteria.
There are some timing restrictions for eligibility as well.
Firstly, your business has to purchase the property after a specific date. For corporations, the property must have been acquired after April 18, 2021. For partnerships and individuals, the property has to have been acquired after December 31, 2021.
The property must also be available for use within a specific time frame, which generally means you start using it for the purpose of earning income. A vehicle is available for use once it has the proper credentials to operate it.
For CCPCs and partnerships where one or more members is a CCPC, the property must be available for use by 2024. For individuals and partnerships where no members are CCPCs, the property must be in use by 2025.
How to claim immediate expensing
To claim the deduction, you must designate the property as “designated immediate expensing property” on your tax return for the year the eligible property was first available for use. For businesses that have more than $1.5 million in eligible property, this is important. That’s because this rule allows your business to choose which property will benefit from immediate expensing.
If your business has more than $1.5 million in property to designate, you’ll usually want to choose the property that takes longer to depreciate for tax purposes.
Once you’ve selected the property, your immediate expensing deduction will be determined before you calculate your CCA deduction for other assets. For CCPCs and partnerships that has members that are CCPCs, the amount of the deduction is the lesser of:
For individuals and non-CCPC partnerships, the deduction is the lesser of:
Exceptions to immediate expensing
It’s important to note that there are some exceptions to the $1.5 million immediate expensing limit per year. Firstly, the limit must be shared among associated businesses. Furthermore, businesses with a short taxation year will have a prorated limit.
If a business or group of associated businesses don’t use the full limit, excess amounts will not be carried forward.
The immediate expensing deduction will reduce the property’s undepreciated capital cost. The remaining amount can then be depreciated per CCA rules, with some exceptions
The half-year rule will not apply. This means the entire capital cost can be deducted. In addition, enhanced CCA under other incentives will not reduce the amount available for immediate expensing or the incentive that would normally allow enhanced CCA. Finally, restrictions that limit how much CCA you can deduct for certain property will apply to the immediate expensing deduction. This includes:
For more information on immediate expensing and how to use it to maximize your tax position, contact Koroll & Company today.