CRA indicates that the later-of-incurring-and-acquiring rule in s. 127.44(9)(e) applies on an expenditure-by-expenditure basis

CRA illustrated the application of s. 127.44(9)(e), which deems an expenditure for qualified CCUS expenditure purposes to be incurred in the later of the taxation year in which it was incurred and that in which the related property was acquired.

A taxable Canadian corporation (BCo), receives initial project evaluation from Natural Resources Canada (NRCan) for its CCUS project in 2025. In 2026, it incurs $1,000,000 for detailed engineering costs relating to Class 57 equipment to be acquired by it; in 2027, it requires further Class 57 equipment for $10,000,000; and in 2028, it incurs $5,000,000 in installing the Class 57 equipment in the course of constructing the carbon capture facilities.

CRA noted that although there was no property acquired in 2028 (but only in 2027), s. 127.44(9)(e) would deem the related property to have been acquired in 2028, thereby permitting the definition of qualified carbon capture expenditure to apply to the taxpayer in 2028 in respect of the $5,000,000 of installation costs.

Furthermore, s. 127.44(9)(e) was to be applied separately to each expenditure such that its application to the installation cost incurred in 2028 would not adversely impact its application to expenditures incurred in the previous taxation year. For example, as for the $1,000,000 of costs incurred in 2026, they would be deemed to be incurred in the later of the year in which they were incurred (2026), and the year in which the property to which they related was acquired (2027), i.e., in 2027.

Neal Armstrong. Summary of 21 July 2025 External T.I. 2025-1068511E5 under s. 127.44(9)(e).