Enhance Capital Cost Allowance Deduction
As part of Budget 2021, one of the federal government’s announcements was to introduce a temporary measure to allow an enhanced Capital Cost Allowance deduction (aka CCA or tax depreciation). Whereas previous rules only allowed a certain percentage of depreciation on capital property acquisitions, the announced rules allow for an immediate deduction of 100% on the acquisition of eligible property.
Here are the conditions that apply to the enhanced deduction:
- The enhanced deduction only applies to Canadian-Controlled Private Corporations (CCPC), but is not only limited to the agriculture sector.
- The enhanced deduction would only apply to acquisitions made on or after the budget date of April 19, 2021 and to property that becomes available for use prior to January 1, 2024.
- Eligible property includes most CCA classes but exclude acquisitions that would be part of classes 1 to 6, 14.1, 17, 47, 49 and 51. For most farmers the major exclusions would be, but are not limited to, buildings and quotas.
- Eligible property must also be property that was not previously owned by the corporation or any other non-arm’s length person. Nor property that was transferred to the corporation on tax-deferred rollover basis.
- There is a maximum amount of $1.5 million per taxation year eligible for the enhanced deduction. Any acquisitions above $1.5 million per year would be treated under regular CCA rules.
- For CCPC’s with less than $1.5 million of eligible acquisitions, the excess capacity cannot be carried forward.
- The $1.5 million limit must be shared among associated corporations.
While this enhancement is not specifically for farming operations, it does present a tax planning opportunity that should be considered. The above information was meant to present a general overview of the enhanced CCA deduction and therefore just like any other tax planning opportunity you must ensure that you understand it correctly to be able to use it properly to your benefit. This is why we recommend that before you make any decisions of capital property acquisitions that are purely drive by tax savings that you speak with an experienced tax professional that can guide you in making the best informed decision.
So don’t hesitate to call Talbot & Associates for further detail on how this tax planning opportunity can apply to your business.