Governments around the world are constantly taking measures to increase the ease of doing business for both their citizens and international investors. Canada is also introducing new tax measures to boost its economic progress by attracting new investors. These measures usually include tax waivers for new commercial places and equipment.

Tax changes in 2018
The number of tax changes tabled in the fall 2018 economic statement was limited; however, those announced changes will have a positive impact on Canadian businesses across all sectors of the economy.

The tax changes

The announced changes are in addition to the already existing tax laws. They include write-offs for all the new assets acquired and used by the local businesses after the budget announcement day (Nov 21, 2018). Let’s take an in-depth look in the Canadian tax system to get a better understanding of these changes.

Canada’s flexible tax system
When people make money, the country makes money, and Canada seems to have a lenient tax policy towards new and growing businesses. Our Canadian system allows its taxpayers to write-off a specific amount from the cost of any newly bought capital property every year through a system called CCA (Capital Cost Allowance). In the year the property is bought, this deduction is reduced to half of the usual deduction (the half-year rule) to facilitate business.

Enhanced CCA (Capital Cost Allowance)
In addition to an existing CCA system that provides a deduction in the cost of newly acquired property in Canada, new changes will provide additional benefits and, in some cases, will increase the deduction to even the full cost of the property bought in that year.

Aii (Accelerated Investment Incentive)
Accelerated Investment Incentive (or Aii) was also introduced in the 21 November statement. Aii will replace the half-year rule for every eligible property in Canada, making sure that a full CCA deduction to all the newly acquired properties is available in the buying year. The claimable tax waiver or allowance will be now be calculated by a specific CCA rate for that class of property to one-and-a-half times the cost of that property.

The practical impact- an example
Let’s look at how the November announcements will impact business. For example, if the allowance for a particular property was 20% prior to this announcement, it is now increased to a flat 30% for the year that the property is bought and used, according to the new Aii system.

Aii is not focused on just a specific range of businesses; in fact, it is equally applicable to all industry and businesses, regardless of size. Every sector of the Canadian economy making capital investment falls under this scheme. However, to be fully eligible for Aii, the property must be bought and used after the 20th of November 2018 and before 2024.

The second change
The CCA (Capital Cost Allowance) and new Aii system are not limited to the property but also apply to all the equipment bought and available for use between 20th November 2018 and 2024. Another enhancement will cause a 100% allowance phase-out for the machinery made and used between 2023 and 2028.

Clean energy equipment
Any clean energy equipment bought and used in the corporate sector of Canada to make goods, already qualify for the allowance under the Capital Cost Allowance system. However, this allowance is also increased to 100% for any clean energy equipment and machinery acquired and used between Nov 20, 2018, and 2024, with enhanced deduction available for this type of equipment acquired and used between 2023 and 2028 just like the regular machinery.

Note: These announcements have many other points, rules, and regulations to ensure an effective and clear application of the aforementioned changes. For additional information, call us at (416) 932-1915.

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