Immediate Write-Off of Capital Assets: Designated Immediate Expensing Properties

The 2021 Federal Budget proposed 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, when the legislation was introduced in Bill C-19 (but not yet  passed), the parameters had changed. 

The new DIEP program also allows partnerships and proprietors to 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. CCPCs can also write of assets purchased after April 9, 2021 and made available for use before 2024.

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).

Special rules have emerged in the fine print for 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.

So, in practical terms for proprietors and landlords, the cost of shorter-lived assets can be written off each year but only to the extent that the proprietorship or rental is turning a profit.

A special rule comes into play when the asset chosen to be written off in the year of acquisition is a class 10.1 property.  The cost is still limited to $33,000 (plus taxes) and, if there is sufficient income from the business in which the vehicle is used, 100% of the limited amount can be written off in the year the asset is available for use. 

The rub comes later, when the vehicle is disposed of.  If the vehicle is not choses as a DIEP, no recapture is required when the vehicle is sold.  However, if the vehicle is a DIEP, then recapture will apply.  For the purposes of the recapture calculation, the proceeds of disposition are prorated by the ratio of the amount added to the class to the total cost of the vehicle.

Additional educational resources: Check out Filing Proprietorship Returns, designed to treach professional advisors tax preparation for proprietorships using CRA’s prescribed forms, tax-efficiently and with tax planning precision.