Accelerated investment incentive
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Accelerated investment incentive
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- Summary
- Accelerated investment incentive
- Effect of the enhanced first-year allowance in the following years
- Application and phase-out
- Additional allowances and other deductions
- Restrictions
- Full expensing for manufacturing and processing machinery and equipment
- Full expensing for clean energy equipment
Summary
The following measures are available to certain eligible property:
- Accelerated investment incentive – Providing an enhanced first-year allowance for certain eligible property that is subject to the capital cost allowance (CCA) rules. In general, the incentive is made up of two elements:
- applying the prescribed CCA rate for a class to up to one-and-a-half times the net addition to the class for the year.
- suspending the CCA half-year rule (and equivalent rules for Canadian vessels and Class 13 property).
- Full expensing for manufacturers and processors – Allowing businesses to immediately write off the full cost of machinery and equipment used for the manufacturing or processing of goods (Class 53).
- Full expensing for clean energy investments – Allowing businesses to immediately write off the full cost of specified clean energy equipment (Classes 43.1 and 43.2).
You must acquire the eligible property after November 20, 2018, and it must be available for use before 2028 in order to qualify for the measures.
For more restrictions on property, see Restrictions.
A phase-out of the measures begins for eligible property that becomes available for use after 2023, though the CCA half-year rule effectively remains suspended for such property.
For more information, see Application and phase-out.
Accelerated investment incentive
The accelerated investment incentive (AII) measure provides an enhanced first-year allowance for certain eligible property (EP).
The incentive's general rule does not apply to Classes 54, 55 and 56. It also does not apply to Classes 43.1, 43.2 and 53 (or to Class 43 in respect of property acquired after 2025 that would have been included in Class 53 if it had been acquired in 2025), as they benefit from the full expensing measures. For more information, see the full expensing measures.
The incentive's general rule is made up of two elements:
- applying the prescribed CCA rate for a class to up to one-and-a-half times the net addition to the class for the year
- suspending the CCA half-year rule (and equivalent rules for Canadian vessels and Class 13 property)
As a result, EP that would be subject to the half-year rule, in essence, qualifies for an enhanced first-year allowance equal to three times the normal first-year deduction. EP not normally subject to the half-year rule (for example, a patent, franchise or limited-period licence) qualifies for one-and-a-half times the normal first-year deduction. For more information, see Example 3.
If the undepreciated capital cost (UCC) of a class increases in a year by an investment in both EP and non-eligible property (NEP), and an amount (for example, a disposition) decreases the UCC of the class, you must first reduce the cost of NEP additions before reducing the cost of EP additions. For more information, see Example 5.
The incentive applies to property for which CCA is calculated on a:
- declining-balance basis (for example, intangible property, included in Class 14.1)
- straight-line depreciation (for example, leasehold improvements, patents, and limited period licences)
Effect of the enhanced first-year allowance in the following years
The AII does not change the total amount that you can deduct over the life of a property. By claiming a larger CCA deduction in the first year, you will have smaller CCA deductions in future years.
For classes where the CCA is calculated on a declining-balance basis, the incentive will automatically reduce the UCC available in respect of the property in subsequent years.
For CCA classes with straight-line depreciation, your ability to claim the incentive in respect of a property in a year will not affect the deduction available in respect of that property in any of the subsequent years, until such time as the UCC is fully exhausted.
Example 1
Where the calculated rate of a class with straight-line depreciation is 20% and there is only one property in the class, and it is an EP addition, you are entitled to deduct 30% (in other words, one-and-a-half times 20%) of the capital cost of the property in the first year, 20% in each of the second through fourth years and 10% (in other words, the remainder) in the fifth year.
Certain resource-related assets can depreciate based on unit of use. You can generally claim CCA based on the portion of the resources depleted in each year.
For properties depreciated on a unit-of-use basis, your ability to claim the incentive in respect of a property in the first year will not affect the deduction available in respect of that property in any of the subsequent years until such time as the UCC is fully exhausted.
Example 2
If you use 10% of a resource in the first year, you will be able to deduct 15% of its capital cost in the first year. After the first year, you will be eligible to deduct the cost in proportion to the amount of the resource depleted in each year to a maximum of 100% of the cost of the resource. The enhanced first-year allowance will reduce the amount of deduction you can claim in the final year.
Application and phase-out
You must acquire the EP after November 20, 2018, and it must be available for use before 2028 in order to qualify for the AII. A phase-out period begins for property that becomes available for use after 2023.
For EP that would normally be subject to the half-year rule (or an equivalent rule) and that becomes available for use during the 2024–2027 phase-out period, the enhanced first-year allowance is reduced to two times the normal first-year CCA deduction. The incentive effectively suspends the half-year rule (and equivalent rules). In essence, you can calculate CCA at the rate relevant to that class without applying the half-year rule.
For EP that would not normally be subject to the half-year rule (or an equivalent rule), and that becomes available for use during the 2024–2027 phase-out period, the enhanced first-year allowance is generally equal to one-and-a-quarter times the normal first-year CCA deduction.
You can claim the enhanced first-year allowance in respect of an EP only in the first tax year that the property becomes available for use.
As a result, as shown in examples 3 to 6, an enhanced first-year allowance of up to three times the normal first-year CCA deduction is available for property that would otherwise be subject to the half-year rule. The enhanced first-year allowance is reduced to two times the normal first-year CCA deduction in the 2024–2027 phase-out period as seen in Example 6.
Example 3
You acquire a Class 10 (30%) property for $300 in 2021, and it becomes available for use in that year. The property is eligible for the incentive and there is no NEP purchased in the year. There are no dispositions in the year.
| Calculation steps | Normal rulesFootnote 1 | Under the AII |
|---|---|---|
| UCC at the beginning of 2021 (Beginning UCC) |
$0 | $0 |
| Addition of EP | $300 | $300 |
| Adjustment to addition = 50% × addition | N/A |
$150 |
| Half-year ruleFootnote 2 | ($150) | N/A |
| Adjusted UCC for CCA calculation | $150 | $450 |
| CCA rate | 30% | 30% |
| CCA for 2021 = 30% × adjusted UCC | ($45) | ($135) |
| UCC at the end of 2021 = Beginning UCC + addition for the year − CCA for 2021 | $255 |
$165 (i.e. $300 − $135) |
| CCA for 2022 = 30% × UCC at the end of 2021Footnote 3 | ($77) | ($50) |
| UCC at the end of 2022 = UCC at the end of 2021 − CCA for 2022 | $178 | $115 |
- Footnote 1
-
Under the normal rules, there is no EP. The amount is shown as EP in this column only to demonstrate how this particular amount is treated under the enhanced first-year allowance rules column.
- Footnote 2
-
Normal rule: 50% × (certain additions less dispositions), but in this example there are no dispositions in the year; Under the AII: 50% × (certain NEP less dispositions), but in this example all property acquired in the year is EP and there are no dispositions in the year.
- Footnote 3
-
After the first year, regular CCA calculations are applicable (in this example, assume there is no addition or disposition in 2022).
Example 4
In this example, you acquire an eligible Class 10 (30%) property for $300 in 2021, and it becomes available for use in that year. There is also an acquisition of NEP of $100 from a non-arm's length person that is subject to the half-year rule.
| Calculation steps | Normal rulesFootnote 4 | Under the AII |
|---|---|---|
| UCC at the beginning of 2021 (Beginning UCC) |
$0 | $0 |
| Addition of EP | $0 | $300 |
| Addition of NEPFootnote 5 | $400 | $100 |
| Adjustment to addition = 50% × EP | N/A | $150 |
| Half-year ruleFootnote 6 | ($200) | ($50) |
| Adjusted UCC for CCA calculation |
$200 | $500 (i.e. $300 + $100 + $150 − $50) |
| CCA rate | 30% |
30% |
| CCA for 2021 = 30% × adjusted UCC | ($60) | ($150) |
| UCC at the end of 2021 = Beginning UCC + addition (EP + NEP) for the year − CCA for 2021 | $340 | $250 (i.e. $300 + $100 − $150) |
| CCA for 2022 = 30% × UCC at end of 2021Footnote 7 | ($102) | ($75) |
| UCC at the end of 2022 = UCC at the end of 2021 − CCA for 2022 |
$238 | $175 |
- Footnote 4
-
Under the normal rules, there is no EP. The division between EP and NEP in this column is only to demonstrate how these particular amounts are treated under the enhanced first-year allowance rules column.
- Footnote 5
-
Enhanced first-year allowance is not available for certain property acquired from non-arm's length person (for example, property for which a CCA deduction has been taken), so the half-year rule may continue to apply. See Additional restrictions.
- Footnote 6
-
Normal rule: 50% × (certain additions less dispositions), but in this example there are no dispositions in the year; Under the AII: 50% × (certain NEP additions less dispositions), but in this example there are no dispositions in the year.
- Footnote 7
-
After the first year, regular CCA calculations are applicable (assume there is no addition or disposition in 2022).
Example 5
In this example, you acquire an eligible Class 10 (30%) property for $100 in 2021 but you also have an acquisition of NEP of $100 from a non-arm's length person that is subject to the half-year rule. You begin the year with an UCC of $100 and there is a disposition of $150.
| Calculation steps | Normal rulesFootnote 8 | Under the AII |
|---|---|---|
| UCC at the beginning of 2021 (Beginning UCC) |
$100 | $100 |
| Addition of EP | $0 | $100 |
| Addition of NEPFootnote 9 | $200 | $100 |
| Disposition during the year |
($150) | ($150) |
| Adjusted UCC after addition and disposition | $150 | $150 |
| Adjustment to addition = 50% × (EP − [Disposition − NEP])Footnote 9 | N/A | $25 |
| Half-year ruleFootnote 10 | ($25) | $0 |
| Adjusted UCC for CCA calculation | $125 | $175 |
| CCA rate | 30% | 30% |
| CCA for 2021 = 30% × adjusted UCC |
($38) | ($53) |
| UCC at the end of 2021 = Beginning UCC + addition (EP + NEP) for the year − (Disposition + CCA for 2021) | $112 | $97 (i.e. $300 − $150 − $53) |
| CCA for 2022 = 30% × UCC at the end of 2021Footnote 11 | ($34) | ($29) |
| UCC at the end of 2022 = UCC at the end of 2021 − CCA for 2022 | $78 | $68 |
- Footnote 8
-
Under the normal rules, there is no EP. The division between EP and NEP in this column is only to demonstrate how these particular amounts are treated under the enhanced first-year allowance rules column.
- Footnote 9
-
The disposition is first offset against the NEP before reducing the eligible acquisition.
- Footnote 10
-
Normal rule: 50% × (certain additions less dispositions); Under the AII: 50% × (certain NEP less dispositions), but in this example NEP is fully offset by the disposition.
- Footnote 11
-
After the first year, regular CCA calculations are applicable (in this example, assume there is no addition or disposition in 2022).
Example 6
In this example, you acquire a Class 10 (30%) property for $300 in 2024, and it becomes available for use in that year. The property is eligible for the incentive and there is no NEP purchased in the year. There are no dispositions in the year.
| Calculation steps | Normal rulesFootnote 12 | Under the AII |
|---|---|---|
| UCC at the beginning of 2024 (Beginning UCC) |
$0 | $0 |
| Addition of EP | $300 | $300 |
| Adjustment to addition = 50% × additionFootnote 13 | N/A | $0 |
| Half-year rule = 50% × addition |
($150) | N/A |
| Adjusted UCC for CCA calculation | $150 | $300 |
| CCA rate | 30% | 30% |
| CCA for 2024 = 30% × adjusted UCC | ($45) | ($90) |
| UCC at the end of 2024 = Beginning UCC + addition − CCA for 2024 |
$255 | $210 (i.e. $300 − $90) |
| CCA for 2025 = 30% × UCC at the end of 2024Footnote 14 | ($77) | ($63) |
| UCC at the end of 2025 = UCC at the end of 2024 − CCA for 2025 | $178 | $147 |
- Footnote 12
-
Under the normal rules, there is no EP. The amount is shown as EP in this column only to demonstrate how this particular amount is treated under the enhanced first-year allowance rules column.
- Footnote 13
-
Adjustment to addition not available after 2023.
- Footnote 14
-
After the first year, regular CCA calculations are applicable (assume there is no addition or disposition in 2025).
Additional allowances and other deductions
The AII generally applies to additional allowances permitted under the Income Tax Regulations.
Under the incentive, you are able to claim additional allowances for property at a liquefied natural gas facility only against your income that is attributable to the liquefaction of natural gas at that facility.
You can't claim the AII for the additional allowance for mining property in Class 41.2. For more information, see Additional restrictions.
Enhanced first-year deductions in respect of Canadian development expense and Canadian oil and gas property expense
An enhanced deduction also generally applies to eligible Canadian development expenses (CDE) or Canadian oil and gas property expenses (COGPE) incurred after November 20, 2018, and before 2028. These expenses are not subject to a half-year rule and, thus, qualify for an enhanced first-year deduction equal to one-and-a-half times the normal first-year deduction that would otherwise be available. The additional deduction begins to phase out for expenses incurred after 2023. CDE and COGPE are also not subject to the available for use rule.
Note
An accelerated CDE or COGPE does not include an expense that is a successored CDE or successored COGPE (in other words, expenses incurred by a predecessor corporation that a successor corporation is entitled to claim) or that is a cost in respect of a Canadian resource property you, or a partnership in which you are a member, acquired from a person or partnership with which you do not deal at arm's length.
Restrictions
Short tax years
Under the short tax-year rule, you must generally prorate the maximum amount of CCA you can claim if the tax year is less than 12 months. Property eligible for the incentive are also subject to the short tax year rules for CCA.
Rules to restrict CCA deduction
In certain situations, there are rules that can restrict a CCA deduction, or a loss in respect of such a deduction, that would otherwise be available.
Some of the rules that continue to apply include rules relating to:
- limited partners
- specified leasing properties
- specified energy properties
- rental properties
- computer software tax shelter rules
- limited recourse debt rules
This is not an exhaustive list.
Additional restrictions
Certain additional restrictions apply to EP. Under the AII, if you acquire property in respect to which a CCA deduction or a terminal loss has been claimed before you acquired it, it is only eligible for the incentive if both of the following conditions are met:
- neither you nor a non-arm's length person previously owned the property
- the property has not been transferred to you on a tax-deferred "rollover" basis
In other words, properties acquired in non-arm's length and roll-over transactions are not eligible for this incentive. They are considered NEP.
In addition, new rules may apply for certain property constructed over multiple tax years and transferred between non-arm's length parties before it is put in use. Where the capital cost of a single property includes expenditures incurred at different times, and you claim CCA or a terminal loss under special rules with respect to some of these expenditures, the single property will be deemed to be split into separate portions such that the portion for which no CCA or terminal loss has been claimed may be treated as a separate property in the event of a subsequent transfer of the property. As a result, the portion for which no CCA or terminal loss has been claimed may qualify as AII property.
Certain property is subject to the half-year rule but other property is excluded, therefore not all NEP are subject to the half-year rule. For more information on the half-year rule, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.
Additionally, the AII does not apply for the additional allowance for mining property in Class 41.2. The allowance for mining property is currently being phased out.
Full expensing for manufacturing and processing machinery and equipment
Currently, certain machinery and equipment may qualify for a temporary accelerated CCA rate of 50% calculated on a declining-balance basis under Class 53. Such property qualifies if it is acquired after 2015 and before 2026 for use in Canada primarily in the manufacturing or processing of goods for sale or lease. This property would otherwise be included in Class 43 and qualify for a CCA rate of 30%.
If you acquire such property after November 20, 2018, and it becomes available for use before 2028, it is eligible for an enhanced first-year allowance. The enhanced allowance initially provides a 100% deduction in the year the property becomes available for use, with a phase-out for property that becomes available for use after 2023.
Full expensing effectively suspends the half-year rule for property eligible for this measure.
| Year property becomes available for use | Normal first-year allowance (half-year rule) | Enhanced first-year allowance for Class 53 |
Enhanced first-year allowance for Class 43Footnote 15 |
|---|---|---|---|
| 2018–2023 | 25 | 100 | N/A |
| 2024 | 25 | 75 | N/A |
| 2025 | 25 | 75 | N/A |
| 2026 | 15 | 55 | 55 |
| 2027 | 15 | 55 | 55 |
| 2028 onward | 15 | N/A | N/A |
The rules relating to short tax years and restrictions described for the incentive apply in respect of this enhanced allowance.
Full expensing for clean energy equipment
Specified clean energy equipment acquired after February 21, 1994, qualifies for an accelerated CCA rate of 30% calculated on a declining-balance basis under Class 43.1. You can depreciate equipment acquired after February 22, 2005, and before 2025, that would otherwise be eligible for Class 43.1 (subject to certain limited exceptions), at an accelerated CCA rate of 50% under Class 43.2. Many of these assets would otherwise depreciate at lower rates of 4%, 8% or 20%.
If you acquire property after November 20, 2018, and it becomes available for use before 2028, it is eligible for an enhanced first-year allowance. The enhanced allowance initially provides a 100% deduction, with a phase-out for property that becomes available for use after 2023.
Full expensing effectively suspends the half-year rule for property eligible for this measure.
| Year property becomes available for use |
Normal first-year allowance (half-year rule) for Class 43.1 | Normal first-year allowance (half-year rule) for Class 43.2 | Enhanced first-year allowance |
|---|---|---|---|
| 2018–2023 | 15 | 25 | 100 |
| 2024 | 15 | 25 | 75 |
| 2025 | 15 | N/A | 75 |
| 2026 | 15 | N/A | 55 |
| 2027 | 15 | N/A | 55 |
| 2028 onward | 15 | N/A | N/A |
The rules relating to short tax years and restrictions described for the incentive apply in respect of this enhanced allowance.
- Footnote 15
-
The full expensing treatment only applies to Class 43 properties if they were acquired after 2025 and would otherwise be included in Class 53 if they were acquired in 2025.
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- Date modified:
- 2024-08-19