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Accelerated Investment Incentive

From tax expert Gerry Vittoratos
June 26, 2019

In the 2018 fall economic statement, the federal government announced substantive changes in the calculation of Capital Cost Allowance (CCA). This article will summarize these changes.

Tripling of the CCA rate in the year of purchase

For the majority of CCA classes, the first-year rate of CCA that you can claim for any new purchase after the announcement date (November 20, 2018) is tripled. For example, for a motor vehicle categorized as class 10, the first year CCA rate would be 15% (half-year rule applied); under the Accelerated Investment Incentive (AII), the first-year rate will be 45% (15% X 3). This new rate is applicable to all CCA properties in a business except for; machinery and equipment for M&P companies, clean energy equipment, computer equipment (Quebec only), and intellectual property (Quebec only). For the eligible properties, the CCA rates will be higher (see below).

This measure will be progressively phased out between 2024-2027. For eligible property that would normally be subject to the half-year rule (or an equivalent rule) and that becomes available for use during the 2024-2027 phase-out period, the incentive will effectively suspend the half-year rule (and equivalent rules).

The Quebec government has harmonized with the federal government on these measures, with a few exceptions (see below).

Full expensing for M&P and clean energy machinery and equipment

Manufacturing and processing machinery and equipment, and clean energy equipment purchased after November 20, 2018, will be eligible for full expensing in the year of purchase, i.e., a CCA rate of 100%. The specific CCA classes that are targeted for this measure are class 53 for manufacturing and processing, and classes 43.1/43.2 for clean energy equipment.

This measure will be progressively phased out between 2024-2027. The phase out will be as follows:

Year

CCA Rate on new purchase (AII)

November 20, 2018 to 2023

100%

2024

75%

2025

75%

2026

55%

2027

55%

2028 and onwards

Prescribed rate as per regulation

 

The Quebec government has harmonized with the federal government on these measures, and allows the full expensing on additional capital assets, such as computer equipment (class 50) and intellectual property (classes 14, 14.1, and 44).

Quebec enhancement to full expensing eligible properties

As mentioned above, the Quebec government harmonized their measures with the federal government to allow businesses to accelerate their CCA rates (see above). On top of the full expensing of the properties mentioned in the previous section (M&P machinery and equipment, clean energy equipment, computer equipment and intellectual property), the government will allow businesses to claim an additional capital cost allowance of 30% in the year following the year of purchase on these properties. For tangible properties, the property must be new at the time of its acquisition. This additional CCA claim is a permanent measure.  This new enhancement is applicable for any purchase of the eligible properties (see above) made after the Quebec fall economic announcement, which was December 3, 2018.

In short summary, the federal and Quebec governments have enacted these measures to ensure competitiveness for Canadian business given the last US federal tax changes. Be sure to review your client’s depreciable assets to take advantage of the new rates.

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