On April 18, 2021, the Honourable Chrystia Freeland, Minister of Finance, proposed a budget driven by a plan to grow Canadian small and medium-sized businesses. It was in this budget that she proposed to allow Canadian businesses to write off the cost of acquiring an asset as an immediate expense, based on certain criteria.
However, it wasn’t until June 23, 2022 that the bill received Royal Assent, allowing us to implement it retroactively for property acquired after April 18, 2021.
The classic depreciation method
When a company acquires an asset (e.g. a building, piece of equipment, vehicle, etc.), it is categorized and depreciated annually according to a pre-determined percentage. The total expense that may reduce income is therefore spread over several years.
The speed of depreciation is directly related to the depreciation category. For example, a tool included in class 8 should be depreciated at 20% per year, whereas a building is normally depreciated at 4% per year.
There is also a half-year rule, whereby only half the depreciation expense is allowed in the year of acquisition.
What is immediate handover?
For assets acquired after April 18, 2021 and before January 1, 2024, it is possible to deduct 100% of the acquisition cost of certain assets as depreciation. In other words, the entire cost of the asset becomes an expense applied in a single year for the company. The half-year rule will not apply to this measure.
Immediate expensing is possible if the acquisition meets the following criteria:
- The company must be a Canadian-controlled private corporation;
- Assets acquired must be put into service during the year;
- Acquired goods are goods other than those included in categories 1 to 6, 14.1, 17, 47, 49 and 51.
This measure applies up to a property acquisition limit of $1.5 million per taxation year (to be allocated among the associated corporations).
The following is a non-exhaustive list of goods for which immediate handover may be applicable:
- Office furniture
- Tools
- Rolling stock
- Hardware
- Signs
- Small instruments
Note that the old depreciation rules (suspension of the half-year rule and the accelerated investment incentive) will still apply to assets in the excluded categories.
Our team of tax specialists is working hard to validate the application of this new rule to your file, by verifying that the criteria are met and that it is fiscally optimal in your situation. What’s more, since this new rule may apply retroactively to property acquired after April 18, 2021, we can analyze and modify previously filed tax returns in consultation with you, to optimize your company’s tax situation.
Please do not hesitate to contact us for further information: info@amyotgelinas.com or 1 877 326 3400.
