2018 Fall Economic Update

The single tax measure introduced in the 2018 fall economic update was accelerated capital cost allowance for eligible property.

What is capital cost allowance?

Depreciable property is not allowed to be deducted as a current expense. Instead, the capital cost of the depreciable property is added to a capital cost allowance class and deducted over several years based on the CCA rate of that class. This annual deduction is called capital cost allowance (CCA for short) and is analogous to depreciation.

The CCA allowed in the first year that a taxpayer's capital property is available for use is generally limited to half the amount that would otherwise be available in respect of that property (the "half-year rule"). This rule applies to the net addition to the class for the year (i.e., the amount by which acquisitions exceed dispositions).

Accelerated capital cost allowance

The accelerated capital cost allowance is available in three separate categories:

Accelerated Investment Incentive (increase in first year allowance), Manufacturing and processing machinery and equipment (full expensing), and Clean energy equipment (full expensing) Accelerated Investment Incentive (increase in first year allowance)

The Accelerated Investment Incentive will provide an enhanced first-year allowance for capital property that is subject to the CCA rules. This first-year enhanced allowance does not include capital property included in categories 2 or 3. The first-year enhanced allowance is also subject to legislation contained in the Income Tax Act and Income Tax Regulations that will restrict the CCA deduction for specific situations such as: limited partners, specified leasing properties, specified energy properties and rental properties.

The enhanced allowance is equal to the following:

Property currently subject to the half-year rule will qualify for an enhanced CCA equal to three times the normal first-year allowance, 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. Here is an example provided by Department of Finance:

Prior to the introduction of the Accelerated Investment Incentive, a property in Class 8, which has a prescribed rate of 20 per cent, would be eligible for CCA of 10 per cent of the cost of the property in the year it becomes available for use, due to the half-year rule. Under the Accelerated Investment Incentive, the taxpayer will be eligible...