Taxpayers may want to review proposed changes to the interest expensing rules and other significant new draft tax legislation that was recently issued by the Department of Finance (Finance). This extensive package of legislation, which was released on 4 February 2022, features a wide range of corporate, personal and trust tax changes.
This article looks at the proposed changes to immediate expensing. For further details of other changes, please see:
- "Draft tax legislation: limitations on deductible interest expense and other measures";
- "Draft tax legislation: mandatory disclosure"; and
- "Draft tax legislation: trust reporting".
Subsequent articles in this series will provide an overview of:
- cryptoasset mining.
Finance has released these draft measures for public consultation and will accept feedback by the deadlines specified for each measure.
Finance's draft legislation includes changes to allow certain taxpayers to temporarily expense up to C$1.5 million of eligible property per year. The new legislation expands the eligibility of these rules, which were originally announced in the 2021 federal budget to apply for Canadian-controlled private corporations (CCPCs), so that sole proprietors and certain partnerships are also eligible for this expensing measure. Finance accepted comments on the draft legislation for the immediate expensing rules up to 7 March 2022. This immediate expensing measure generally applies to "eligible property" acquired by a CCPC on or after 19 April 2021, and that becomes available for use before 1 January 2024, up to a maximum amount of C$1.5 million per taxation year. The rules do not permit any carry forward of excess capacity. Eligible property includes capital property that is subject to the capital cost allowance (CCA) rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51.
The immediate expensing would only be available for the year in which the property becomes available for use and would be shared among an associated CCPC group.
In addition, the draft legislation provides that unincorporated businesses carried on directly by Canadian resident individuals (other than trusts) and certain partnerships are also now eligible for the C$1.5 million temporary immediate expensing measure. A partnership is eligible where all members would have otherwise benefitted from the measure had they carried on the partnership's business directly, although multi-tiered partnerships are not eligible. In particular, this measure would be effective for eligible property acquired on or after 1 January 2022 that become available for use before 2025 (in the case of an individual or a partnership all the members of which are individuals) or before 2024 (for other partnerships).
For further information on this topic please contact Dan Morrison, Priscila Padilla or Will House at KPMG Law by telephone (+1 416 777 8000) or email ([email protected], [email protected] or [email protected]). The KPMG Law website can be accessed at www.kpmg.com.