Written by Laura Simmons | Senior Tax Manager, MRSB
The Fall Economic Statement was released by the Department of Finance on November 21, 2018. Canada’s economy continues to remain strong and growing. However, the country has faced several years of uncertainty, including new tax changes in the United States that may impact the Canadian economy. In response to this, along with other factors, the Government has proposed a number of new tax incentives to support and increase business investment in Canada.
Under the current tax rules, the cost of a capital asset, such as building, machinery and equipment, is deducted as capital cost allowance (CCA) over a period of time that corresponds to the useful life of the asset. The new tax incentives will allow Canadian businesses to write off a larger amount of the cost of a newly acquired asset in the year an investment is made. By increasing the deduction available in the first year, the intention is to accelerate tax savings and allow funds to be re-invested in the business for growth.
The tax incentives discussed below will apply to qualifying assets acquired after November 20, 2018. The accelerated tax deductions will be gradually phased out beginning in 2024 and will no longer be available for investments put in use after 2027.
Manufacturing and Processing Equipment
The new rules allow for an immediate write off of the cost of machinery and equipment used for the manufacturing and processing of goods in Canada. This effectively increases the CCA rate for Class 53 assets put in use to 100%.
Specified Clean Energy Equipment
The new rules will also allow for an immediate write off of the cost of specified clean energy equipment. This effectively increases the CCA rate for Classes 43.1 and 43.2 assets put in use to 100%.
Accelerated Investment Incentive
This incentive applies to both tangible and intangible capital assets, with the exception of those assets eligible for a full write off as discussed above. Under the Accelerated Investment Incentive, a business is able to claim up to three times the normal deduction for CCA in the year a capital asset is put into use.
The half-year rule, which reduces the amount of CCA otherwise available by half in the year of acquisition, does not apply under any of the three incentives. Consistent with the existing rules, the accelerated CCA claimed under the incentives will be pro-rated for short taxation years.
The chart below outlines the impact of the proposed measures for the CCA deduction in the first year on select assets as shown.
It is important to note that the total CCA available over the life of an asset does not change with the new tax incentives. The accelerated deduction in the first year will be offset by smaller deductions available in future years. Capital assets acquired in a non-arm’s length transaction or on a tax-deferred rollover basis are not eligible for the tax incentives.
The restrictions under the Income Tax Act that limit the amount of CCA that may be deducted in a year, related to limited partnerships, specified leasing properties and rental properties, continue to apply.
Other Tax Measures
- The Mineral Exploration Tax Credit, which is scheduled to expire March 31, 2019 will be extended to March 31, 2024.
- The Government will introduce a new category of qualified donees which will include eligible non-profit journalism organizations. This will allow the organizations to receive funding from registered charities and to issue official donation receipts, allowing individual donors to benefit from the charitable donation tax credit and corporate donors to benefit from the tax deduction.
- A new refundable tax credit will be introduced for qualifying news organizations to be effective January 1, 2019. The tax credit will support labour costs associated with the production of news content and will generally be available to both non-profit and for-profit news organizations.
- A new temporary, non-refundable 15% tax credit will be introduced for qualifying subscribers of eligible digital news media. Additional details are to be provided in Budget 2019.
|Maximum First Year Capital Cost Allowance||Existing Rules||Proposed Measures to Dec. 31, 2023|
Manufacturing and processing equipment
Clean energy equipment
|Accelerated Investment Incentive
Computer software – Class 12
Computers – Class 50
Motor vehicles – Class 10
Office equipment – Class 20
Buildings used in manufacturing and processing – Class 19