With the calendar turning to 2023, it is a good time to consider tax planning. One of the most interest opportunities for tax planning is Immediate Expensing of Capital Property.
The 2021 Federal Budget introduced new rules with respect on immediate expensing of capital assets for Canadian Controlled Private Corporations (CCPCs). This is a temporary measure that is available on certain classes of assets of eligible property that is normally subject to the Capital Cost Allowance (CCA) rules. Some of the excluded assets are buildings, goodwill, and telephone systems.
There is a maximum 1.5-million-dollar limit per year, which would have to be shared within an associated group of CCPCs. There are several other restrictions, but this is treatment is available for Self Propelled equipment (Class 10) and General Use Equipment (Class 8). These classes represent the bulk of what is normally purchased by our business clients.
Starting in 2022, this incentive was available for unincorporated businesses. The property must become available for use before 2025 (or 2024 for partnerships where not all partners are individuals). The new rules do not change the amount of CCA that may be claimed, but rather accelerate the amount that can be claimed each year.
Planning opportunities:
- Timing
- What assets should the additional CCA be claimed on?
- Purchase vs. lease
- Saving the CCA
Timing
If you were planning to make a capital asset purchase for your business, you have the next two years to take advantage of these rules. The Immediate Expensing of Capital Property can significantly reduce the amount of tax that is payable for both incorporated and unincorporated businesses.
What assets should the additional CCA be claimed on?
Ensure that the assets you acquire are eligible for the Immediate Expensing of Capital Property. Other classes of assets may still be eligible for Accelerated Investment Incentive, which is available for a wider range of capital assets classes.
Purchase vs. lease
With the Immediate Expensing of Capital Property, purchasing an asset would be more attractive than leasing. In the past, the pendulum might have swung the decision in favour of leasing. Normally, the entire lease payment is deductible against income for income tax purposes. With the entire asset value being deductible under the Immediate Expensing provisions, purchasing the asset is more favourable.
Saving the CCA
Although there is significant incentive provided under the Immediate Expensing of Capital Property, consideration should be given as to whether it is the best idea to claim the entire amount in the current year. If the entire amount is immediately expensed, there would be no CCA to claim in future years in relation to that particular asset. This could be problematic if there are no anticipated purchases in the future year, and there is little to no Undepreciated Capital Cost (UCC) to carry forward. If the business is expected to be taxable in the future, then saving the CCA claim might be wise.
As you can see there is much to consider when purchasing a capital asset. At Accent CPA, we are here to help you with trusted advice and personal service. Please contact us if you need assistance.