The Minister of Finance, Bill Morneau, delivered the country’s 2018 Fall economic update speech on November 21, 2018.
Here are the highlights of the tax measures contained in the Fall economic update.
An enhanced first-year allowance of 100% deduction is provided for property currently included in Classes 43, 43.1, 43.2 and 53 if it is acquired after November 20, 2018 and becomes available for use before 2028. The half-year rule will not apply for property eligible to this measure.
This measure concerns machinery or equipment that are 1) for the manufacturing of goods; 2) for the processing of goods; and 3) specified clean energy equipment.
Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer will be eligible for the enhanced allowance only if both of the following conditions are met:
Under the short taxation-year rule, the amount of CCA that can be claimed in a taxation year must generally be prorated when the taxation year is less than 12 months. When these rules apply, the full expensing will apply in respect of an eligible property on the same prorated basis and will not be available in the following taxation year in respect of the property.
This incentive will be gradually phased out from 2024 to 2027.
This new measure introduces an accelerated capital cost allowance for all businesses that are making capital investments.
This incentive will provide an enhanced first-year allowance for capital property subject to the CCA rules (referred to as “eligible property”), subject to restrictions.
The allowance will be calculated by applying the prescribed CCA rate for a class to one-and-a-half times the net addition to the class for the year. The half-year rule will effectively be suspended for property eligible to this measure.
As a result, property currently subject to the half-year rule will, in essence, qualify for an enhanced CCA equal to three times the normal first-year allowance and property not currently subject to the half-year rule will qualify for an enhanced CCA equal to one-and-a-half times the normal first year allowance.
For example, if a taxpayer incurs $100 in respect of accelerated investment incentive property included in Class 10 (30% CCA rate) in 2019 and it becomes available for use in that year (assume no reductions in the Class for the year), the taxpayer may deduct $45 instead of the $15 that would normally be available in the first year because of the half-year rule, as calculated below:
Undepreciated capital cost at the end of the year:
Adjusted undepreciated capital cost:
Enhanced first year CCA deduction ($150 x 30%):
Undepreciated capital cost after CCA deduction:
In the following year, assuming no new acquisitions, the taxpayer may deduct 30% of the $55.
Under the short taxation-year rule, the amount of CCA that can be claimed in a taxation year must generally be prorated when the taxation year is less than 12 months. When these rules apply, the Accelerated Investment Incentive will apply in respect of an eligible property on the same prorated basis and will not be available in the following taxation year in respect of the property.
Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer will be eligible for the full expensing only if both of the following conditions are met:
The Accelerated Investment Incentive will also not apply to property in Classes 43 and 53 (manufacturing and processing machinery and equipment), 43.1 and 43.2 (clean energy equipment), which are eligible for the full expensing measure.
The 15% mineral exploration tax credit shelf life that was supposed to expire March 31, 2019 by 5 years is extended until March, 31 2024.
A new refundable tax credit will be created and will come into effect starting January 2019 for news organizations. The conditions of eligibility as well as other details will be determined by an independent panel.
A new 15% non-refundable tax credit to qualifying subscribers of Canadian digital news media will be introduced in the federal 2019 Budget.
About the authors:
Mathieu Ouellette, CPA, CA, LL.M Tax, is a Tax Partner at Crowe BGK
Connect with him: [email protected]
Daniel A. Brisebois, L.L.B., D.D.N., M.Fisc. is a Tax Specialist at Crowe BGK