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New tax incentive on equipment purchase provides immediate benefit

New tax incentive on equipment purchase provides immediate benefit

Synopsis
3 Minute Read

Federal Budget 2021 provides an upfront tax incentive for Canadian-controlled private corporations (CCPC) to undertake significant capital asset purchases. It does so by allowing for the immediate deduction of up to $1.5 million of certain depreciable property purchased from arm’s-length parties between April 19, 2021, and January 1, 2024.

Partner, Taxation Services

May 2022 Update: On April 28th the Department of Finance released Bill C-19, which includes the draft legislation for immediate expensing. The draft legislation extends immediate expensing to include certain Canadian partnerships and individuals after January 1, 2022. As the legislation has not received Royal Assent, please see your MNP advisor to discuss your situation and the recommended filing approach.

Qualifying assets include newly purchased capital property subject to the capital cost allowance (CCA) rules. Excluded are certain specific classes of depreciable assets, most notably Class 1 (buildings), Class 6 (bins and outbuildings), and Class 14.1 (quota, goodwill). Purchases of used property and equipment are included as eligible for immediate expensing, provided the vendor is an unrelated third party.

The $1.5 million expense limit refreshes each year until January 1, 2024 and is to be shared among associated corporations. As an example, a farm corporation could purchase new combines totalling $1.5 million and for tax purposes be permitted to fully expense the entire amount. In Alberta, where the general corporate tax rate is 23 percent, the result would be up to $345,000 of immediate tax savings. Under the current Accelerated Investment Incentive rules, the same combine purchases would result in only $155,250 of upfront tax savings, or 45 percent less than the new incentive.

It is important to note the above is subject to any changes that may be made once draft legislation is released. It is also important to be aware these tax savings are realized at the expense of future taxation years, as the assets have been fully expensed for income tax purposes and there will be less CCA available in those years. Nonetheless, this measure provides welcome stimulus for capital reinvestment and expansion plans.

Contact:

For more information, contact MNP Tax Services Partner Trevor Tamke, CPA, CA, at 403.329.2881 or [email protected]

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