Depreciating Capital Property: Increased Rate for a Limited Time Only

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May 30, 2022

By: Milosz Zak, Senior Associate, Farber Tax Law

Parliament introduced a temporary immediate expensing measure for capital property. The measure allows qualifying corporations to write off up to $1.5 million in qualifying investments in the first eligible year, rather than claiming these costs across multiple years, resulting in a lower tax payable. This incentive provides a temporary accelerated deduction to encourage investments by small and medium-sized Canadian businesses and supports economic recovery through long-term productivity and growth.

Business owners should be aware that the immediate expensing measure is temporary, applies only to specific types of investments, and has a monetary limit. Owner-managers should seek planning advice as to what sort of investments should be made to benefit from the measure, when the investments should be acquired, and which investments the limit should be applied to.

Generally, the depreciation of capital property is subject to a half-year rule. In the first year, capital property can be depreciated at a rate limited to half the amount that would otherwise be available to be depreciated. The new measure suspends the half-year rule for the property for which it is being used.

In order for capital property to be eligible for immediate expensing, it must have been acquired by after April 18, 2021 and the property must be available for use before January 1, 2024. The ability to immediately expense the capital cost is only available in the year the property becomes available for use. Additionally, the property must not have been owned by the taxpayer or by a non-arm’s length person and must not have been transferred to the taxpayer on a tax-deferred rollover basis.

The immediate-expensing measure supports businesses run by owner-managers and is not limited to a specific sector of the Canadian economy. The benefit of the measure is the ability to immediately expense qualifying property as opposed to depreciating the capital property over the course of several years. Ultimately, the goal is to encourage businesses to invest in assets which drive economic growth. We recommend that owner-managers consult with experienced tax counsel to determine whether the new measure applies to their capital property.