Business News: Changes to Source Deductions and ECP Interesting

Announcements were made related to farming and fishing businesses, CCA for clean energy generation, and a proposal for changes to the rules on Eligible Capital Property.

Farming and Fishing Businesses

Farming and Fishing Businesses received some special treatment in the February 11 Budget.  The Income Tax Act (ITA) currently allows for a tax deferral on the intergenerational transfer of farming and/or fishing properties, as well as an $800,000 Lifetime Capital Gains Exemption (LCGE) on qualifying farming and fishing properties, including farming or fishing corporations.

However, these properties will qualify for the LCGE only if used principally (interpreted as 50% or more) in farming or fishing operations.  A family involved in farming, fishing and a third business activity may not meet the 50% or more requirements.  In addition, qualification for the LCGE requires that 90% or more of the fair market value of the assets (the all or substantially all test) of the operation be used within the operation.

Effective with the 2014 tax year, the eligibility for the intergenerational rollover and the LCGE will be extended to property that is used principally in a combination of farming and fishing. 

Remittance Thresholds for Employer Source Deductions

Currently employers where employee source deductions (Income Tax, CPP and EI) exceed $15,000, but less than $50,000 on a monthly basis are required to remit to CRA twice monthly.  Employers where monthly source deductions exceed $50,000 are required to remit to CRA four times a month.  Effective January 1, 2015, the remittance thresholds will increase to $25,000 and $100,000 respectively effective January 1, 2015.

Capital Cost Allowance Changes:  Clean Energy Generation

Capital Cost Allowance classes 43.1 and 43.2 are used for cogeneration systems and waste-fuelled electricity generation systems – depending on the systems’ level of efficiency.  Class 43.2 will be expanded to include Water-Current Energy Equipment and gasification equipment used to gasify eligible waste fuel for use in a broader range of applications acquired on or after February 11, 2014.

Eligible Capital Property

Eligible Capital Property (ECP) is a capital expenditure incurred to acquire rights or benefits of an intangible nature, such as Goodwill.  Currently Eligible Capital Expenses (ECE) does not fall under Capital Cost Allowance rules and has an amortization calculation of its own.  Public consultation will be held on a proposal to eliminate the current ECP calculation and create a new CCA class.  Under the proposal, the current balance of the Cumulative Eligible Capital account would transfer to the new proposed CCA class which would feature a 100% inclusion rate and a 5% annual depreciation rate.  Existing rules for recapture, capital gains and depreciation would also apply. As part of the consultation process, special rules are anticipated to simplify the transition for small businesses.