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Immediate Expensing

Updated: 2023-01-06

Status of T5013 Schedule 8 and Immediate Expensing

TaxCycle T5013 does not yet contain calculations to support the immediate expensing of CCA. Work on these calculations is underway and we hope to finalize them for the next release of T5013 in a few weeks. Meanwhile, if you wish to claim immediate expensing, please complete and override the new Part 1 table and the new columns in Part 3, as applicable.

General Rule

The Department of Finance has introduced a temporary tax incentive measure called “immediate expensing incentive”. This incentive allows an eligible person or partnership (EPOP) to immediately expense costs of certain depreciable capital property (known as “immediate expensing property”) in the year of acquisition up to an annual maximum limit of $1.5 million. This annual limit is called the immediate expensing limit and it must be shared with any associated EPOPs. This limit is subject to proration if a tax/fiscal year of an EPOP is less than 51 weeks.

Abbreviations and Definitions

The following abbreviations are used throughout this topic.

  • EPOP Eligible Person or Partnership (entity eligible to claim immediate expensing)
  • IEL Immediate Expensing Limit ($1.5 million limit)
  • IEP Immediate Expensing Property (eligible property)
  • DIEP Designated Immediate Expensing Property (elected/designated eligible property)

An EPOP is defined as:

(a) a corporation that was a Canadian-controlled private corporations (CCPC) throughout the year;

(b) an individual (other than a trust) who was resident in Canada throughout the year; or

(c) a Canadian partnership, all of the members of which were, throughout the period, persons described in paragraphs (a) or (b).

IEP refers to eligible capital asset additions and is defined as property of a prescribed class other than property included in any of Classes 1 to 6, 14.1, 17, 47, 49 and 51. If the EPOP is:

  • a CCPC, the IEP is the capital assets acquired after April 18, 2021, and before 2024.
  • an individual or a Canadian partnership all the members of which are individuals throughout the taxation/fiscal year, the IEP is the capital assets acquired after December 31, 2021, and before 2025.
  • a Canadian partnership all the members of which are not individuals throughout the fiscal year, the IEP is the capital assets acquired after December 31, 2021, and before 2024.

In order to apply immediate expensing incentive, an EPOP must “designate” IEP as DIEP (“designated immediate expensing property”). This designation occurs automatically through preparing a CCA schedule (such as Schedule 8 for T2 or T5013).

In accordance with the definition of an EPOP, above, for the purposes of sharing the immediate expensing limit among associated EPOPs, a CCPC may be considered associated with an individual or a partnership. When preparing a T2 return, you must complete the table in Schedule 8 Part 1 accordingly.

A CCPC with a capital cost of IEP that exceeds $1.5 million in a taxation year, and that has immediate expensing property ordinarily included in more than one CCA class, can decide which CCA class to attribute the immediate expensing incentive. Any remaining UCC may be subject to additional capital cost allowance deductions under the existing CCA rules (AIIP).

Example

For example, an EPOP (CCPC) invests $3,000,000 in equal amounts to acquire the following three properties:

  • Class 7 (15%): $1,000,000
  • Class 10 (30%): $1,000,000
  • Class 50 (55%): $1,000,000

Although the CCPC could designate any of the three properties as DIEP, it is expected that it would generally designate, for purposes of the immediate expensing incentive, starting with property that falls under CCA classes that would otherwise offer the lowest CCA deduction. By doing so, the EPOP would be able to maximize its CCA claim. Simply put, the CCA claim is maximized if the immediate expensing incentive is applied to class 7, class 10, and then class 50—in this order—as illustrated below.

CCA Class (rate) Cost of
Acquisitions
Immediate
Expensing
1st year Allowance
on Remainder of Class
Total First-Year
Allowance
Class 7 (15%) $1,000,000 $1,000,000 $0 $1,000,000
Class 10 (30%) $1,000,000 $500,000 $225,000 $725,000
Class 50 (55%) $1,000,000 $0 $825,000 $825,000
Total $3,000,000 $1,500,000 $1,050,000 $2,550,000

Calculation Options (Manual vs. Automatic)

TaxCycle offers two ways of calculating immediate expensing incentive, depending on how you answer the following question on the S8Claim worksheet:

  • Answer No (default) to have TaxCycle automatically calculate the immediate expensing claim as you enter capital asset additions on the S8Asset worksheet or other S8 forms.
  • Answer Yes to manually enter the claim or use the Quick Fix review message to enter the claim for immediate expensing.

Screen Capture: Manually allocate immediate expensing limit to each DIEP in S8Asset

Updated T2SCH8

The CRA issued a new T2 Schedule 8 (T2SCH8) to allow eligible corporations to claim immediate expensing. This new version includes a table in Part 1 for allocating the $1.5 million limit among associated EPOPs.

Screen Capture: New T2SCH8 Part 1

In addition, the Part 2 CCA table contains extra columns to accommodate the immediate expensing calculation.

T2SCH8 Part 1 and CGI Worksheet

TaxCycle automatically completes the Part 1 table when you enter associated corporation information on the Corporate Group Information (CGI) worksheet.

  1. If the corporation is considered associated with individuals or partnerships for the purposes of immediate expensing incentive, enter the information about the associated individuals or partnerships and select the box on the CGI worksheet to transfer the information to the Schedule 8 Part 1 table.
  2. Make sure to provide a social insurance number (SIN) or partnership account number, as applicable.

Screen Capture: Corporate Group Information

S8Asset

An immediate expensing deduction is calculated to be the lesser of:

  • the UCC of a designated immediate expensing property (DIEP), or
  • the immediate expensing limit available to the corporation.

The S8Asset in the 2022 T2 modules contains a section to calculate the deduction accordingly.

Screen Capture: S8Asset

  1. To claim immediate expensing for an addition, you must enter the transaction date.
  2. If the corporation is a CCPC and the transaction date falls after April 18, 2021, and before 2024, TaxCycle automatically answer Yes to the DIEP? question, making the addition eligible for the immediate expensing deduction. If, for any reason, the addition is not a DIEP, override the DIEP? question to No.
  3. For a DIEP acquired and disposed of in the same tax year, enter the details of the disposition and answer Yes to the DIEP? question in the Dispositions column on the right side of the same section.

Screen Capture: DIEP additions and dispositions

If, after entering the addition, the corporation is eligible to claim immediate expensing deduction, TaxCycle will automatically calculate immediate expensing.

However, if you answered "Yes" to the question on the S8Claim to enter the claim manually, TaxCycle displays a Quick Fix review message prompting you to enter an amount for the immediate expensing limit. Click one of the links in this message to enter the immediate expensing limit just for that particular asset or for all the assets in all CCA classes.

Screen Capture: Enter IEL to all CCA classes

After you enter the limit, TaxCycle automatically calculates the immediate expensing deduction and includes it in the total CCA claim field.

Screen Capture: CCA (including immediate expensing deduction amount)