New Enhanced Tax Depreciation Write-Offs

The Department of Finance announced new rules in its 2018 Fall Economic Update on November 21st, 2018, to temporarily allow Canadian businesses to immediately expense for tax purposes 100% of the cost of certain newly acquired machinery and equipment and certain specified clean energy equipment if acquired after November 20th, 2018, and before 2028.

These temporary rules are in response to significant US tax reform enacted at the end of 2017 which included allowing US businesses to immediately deduct up to 100% of certain capital investments before 2023 and to permanently reduce the US corporate tax rate to 21%.

Furthermore, under new Accelerated Investment Incentive rules, Canadian businesses of all sizes and in all sectors of the economy that acquire capital property after November 20th, 2018, are eligible for an enhanced tax depreciation write-off in the year the property is acquired and available for use of up to 3 times the amount that would normally apply.

Example:

If a business acquires general equipment for $10,000 and puts it into use, it is generally eligible for a first-year write-off of $1,000, being 10% of the capital cost of the equipment.  Under these new rules, the business is now eligible to claim tax depreciation in the first year equal to $3,000, being 30% of the capital cost of the equipment or 3 times the regular amount.

The new Accelerated Investment Incentive rules apply to both tangible capital assets acquired (such as computers, equipment, buildings and vehicles) and intangible assets acquired (such as patents, intellectual property and goodwill). To qualify, the taxpayer and non-arm’s length persons must not have previously owned the property and the property cannot have been acquired by the taxpayer on a tax-deferred “rollover” basis.

These tax write-off incentives will be gradually phased out starting in 2024 and will no longer be available after 2027.

Eligible Canadian Development Expenses incurred in the mining and oil and gas sector and Canadian Oil and Gas Property Expenses will also generally be eligible for an accelerated first-year deduction equal to one and a half times the deduction that would normally be available.

If you require any assistance in regards to whether these new accelerated write-off and depreciation rules apply in your particular fact situation, please contact your DMCL advisor.