Tax Alert – Canada: 2018 Fall Economic Statement

Topic: 2018 Fall Economic Statement

On November 21, 2018, the Honourable Bill Morneau presented the Federal government’s 2018 Fall Economic Statement.

The Government has announced changes that they intend to improve the competitiveness of the Canadian tax system as it relates to businesses.  These announcements are further to their statement in the 2018 Federal Budget that they would analyze US tax reform to assess potential impacts on Canada.

Accelerated Investment Incentive (AccII)

The tax measures focus on enhanced tax deductions for investments in capital property by all businesses.  This will be accomplished by increasing the capital cost allowance (CCA) deduction available in the year of acquisition of property that is subject to the CCA rules.

• Tangible or Intangible Property (other than Classes 53, 43.1 and 43.2)

For all tangible or intangible property (other than Classes 53, 43.1 and 43.2 which are discussed below) that is acquired after November 20, 2018 and becomes available for use before 2024, the “half year rule” will be suspended and CCA will be calculated at the applicable rate based on one and a half times the net addition to a CCA class for the year.  As an example, under the current rules, the CCA deduction allowed on an addition to Class 8 would be 10% of the original cost in the year of acquisition. Under the proposed rules, the CCA deduction allowed on an addition to Class 8 after November 20, 2018 would be 30% of the original cost in the year of acquisition.

The incentive will be less for property that is acquired after November 20, 2018 and which becomes available for use from 2024 to 2027.  For that period, the incentive will be the elimination of the half-year rule. Continuing the example above, the deduction allowed would be 20% instead of 10% in the year of acquisition.

This change will not impact the total deductions available but will increase the amount available in the year of acquisition and decrease the deductions available in subsequent years by an offsetting amount.

Where a corporation has a short taxation year, the CCA deduction available will be prorated for that short year and no adjustments will be available in the year following the short year.  

The AccII will not apply to purchases from a related company, or to tax-deferred transactions.

There are also some special rules related to liquefied natural gas facilities, Class 41.2 mining property and Canadian development expense.

• Class 53 – Manufacturing and Processing equipment

The enhanced CCA rate for new manufacturing and processing equipment that would otherwise be in Class 53 will be 100% in the year of acquisition where the asset is available for use before 2024.  The enhanced CCA rate will be phased out to 75% for new purchases available for use in 2024 and 2025 and to 55% for new purchases available for use in 2026 and 2027.

• Classes 43.1 and 43.2 – Clean Energy Equipment

The enhanced CCA rate for new specified clean energy equipment that would otherwise be in Class 43.1 or 43.2 will be 100% in the year of acquisition where the asset is available for use before 2024.  The enhanced CCA rate will be phased out to 75% for new purchases available for use in 2024 and 2025 and to 55% for new purchases available for use in 2026 and 2027.

Support for News Organizations

To support news organizations in Canada, the Government announced the following:

• Eligible news organizations will have access to charitable tax incentives such as the ability to issue official donation receipts;
• A new refundable tax credit will be available to certain news organizations to support labour costs associated with producing original news content; and
• A new non-refundable tax credit for qualifying subscribers of eligible digital news media.  More details are expected in the 2019 budget.

To learn more or if you have any questions regarding the above information, please contact your Facet Advisors professional, or call us at 604-534-3004.