Ending Soon:  Immediate Write-Off of Capital Assets Assets (DIEP)

An important tax write off is coming to an end in 2024.  The claiming of an immediate write off for Designated Immediate Expensing Properties (DIEP) will come to an end this year. Here  are the details: 

The Backdrop.  The 2021 Federal Budget introduced a provision to allow Canadian Controlled Private Corporations (CCPCs) to write off up to $1,500,000 of “eligible assets” per year if the assets were purchased between April 9, 2021 and the end of 2023.  However, subsequently Bill C-19, which received Royal Assent on June 22, 2022, changed the parameters.  Now partnerships and proprietors too could  a claim a 100% CCA rate on up to $1,500,000 per year of “eligible assets” acquired after January 1, 2022 and made available for use before 2025.  Taxpayers in the market for new assets in their business will want to pay attention to this deadline.  

What assets qualify?  For the purposes of this election, eligible assets include all asset classes except 1 to 6, 14.1,17, 47, 49 and 51 (longer-lived assets).

Do automobiles qualify?  Yes, the purchase of automobiles is included in the eligible list,  but the write off calculations are somewhat more complicated as a result.  For example, normally, there is no recapture for a class 10.1 vehicle, but if the 100% first-year CCA claim is made for a class 10.1 vehicle, it will be subject to recapture when it is disposed of.  The proceeds of disposition will be reduced by the ratio of the amount added to the class divided by the actual cost of the vehicle.

Special Rules for the DIEP

• Where the taxation year of the taxpayer is less than 51 weeks, the $1,500,000 DIEP limit is prorated by the ratio of the number of days in the taxation year to 365.
• Where taxpayers are associated, the $1,500,000 DIEP limit must be allocated to the associated taxpayers according to an agreement filed with CRA.
• CCA claims for DIEP properties cannot be used to create or increase a loss from the business (or rental) in which the DIEP property is used.

There are other provisions to take into account as well, as options for the most advantageous ways to write of the cost of wear and tear on assets. 

The Accelerated Investment Incentive (AII).  This general provision had two elements for most capital acquisitions:

1. Claim one and a half times the prescribed CCA rate to a net addition of a class (note, this incentive can only be claimed in the first year in which the asset is acquired) and
2. Do not use the half year rule in the first year of acquisition.This incentive includes CCA claims for Class 13 (leasehold improvements) and the cost of Canadian vessels.

Here’s what’s phasing out under this provision.  For most eligible property that qualified for the AII:

• First-year claims tripled for purchases between November 20, and December 31, 2023. Rather than restricting the claim to 50% of the normal Capital Cost Allowance (CCA) claim under the half-year rules, the deduction claimable will be 150% of the normal CCA claim.
• For purchases 2024 to 2027, the half-year rule will be suspended (full CCA claims will be allowed) and where the half-year rule does not apply, the claim will be 125% of the normal claim.
• For purchase after 2027 the usual CCA rules will apply (the half year rules are back again).

Bottom Line:  Year end tax planning takes on new significance in 2024 as some of the CCA incentives previously announced to stimulate the economy are phased out.  It’s important to discuss these matters with any client writing off a business asset in tax year 2024.

To learn more take the November 6 CE Summit,  one of four technical courses in the new Diploma in Advanced Family Tax Compliance.  To register: https://learn.knowledgebureau.com/learning-paths/advanced-family-tax-compliance