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Eligible Capital Property

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Business -> Eligible Capital Property
Income Tax Act s. 14(5), 20(1)(b), 54, 248(1)

Eligible Capital Property, Eligible Capital Expenditures and Cumulative Eligible Capital Deduction

The Federal 2016 Budget proposes to repeal the current tax treatment of eligible capital property, and replace it with a new capital cost allowance (CCA) class available to businesses and provide rules to transfer taxpayers' existing cumulative eligible capital (CEC) pools to the new CCA class.  This proposal is not intended to affect the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) in this area.  See the information at the bottom of the page re the proposed changes.

Some examples of eligible capital property are goodwill, trademarks, and some patents, which are considered intangible assets.  The costs incurred to buy these assets are called eligible capital expenditures.  Costs incurred for incorporation, reorganization or amalgamation also qualify as eligible capital expenditures.

Eligible capital expenditures cannot be deducted in full, and are not eligible for capital cost allowance (CCA).  They may qualify for a partial deduction called a cumulative eligible capital deduction.

When eligible capital property is purchased, in most cases 75% of the cost is recorded in a "cumulative eligible capital (CEC) account".    This is an account which tracks, for tax purposes, your eligible capital property acquisitions and dispositions.  7% of the balance of this account can be deducted from income each year.

Information on Canada Revenue Agency (CRA) website:

bulletIncome Tax Interpretation Bulletin IT143R3 - Meaning of Eligible Capital Expenditure
bulletEligible Capital Expenditures - Sole Proprietors and Partnerships
bulletT4002 Business and Professional Income Guide - See Chapter 5 Eligible Capital Expenditures - calculation of eligible capital deduction for self-employed sole proprietors or partnerships.
bulletT4012 T2 Corporation Income Tax Guide - Look for cumulative eligible capital deduction
bulletT2SCH10 - Cumulative Eligible Capital Deduction

Proposed Changes re Eligible Capital Property

The Federal 2014 Budget announced a public consultation on a proposal to repeal the existing eligible capital property (ECP) regime, replace it with a new capital cost allowance (CCA) class available to businesses, and transfer taxpayers' existing cumulative eligible capital (CEC) pools to the new CCA class.  The Federal 2016 Budget proposes to effect these changes beginning January 1, 2017.  For more detail on the proposed changes, see Eligible Capital Property on the 2016 Budget website.

Under the 2014 Budget proposed changes, expenditures that are currently added to CEC at 75% of their cost would be included in a new CCA class at 100% of their cost.  The new class would have a 5% annual depreciation rate, instead of the current 7% of 75% of eligible capital expenditures.  The existing CCA rules would generally apply, including rules relating to recapture, capital gains and depreciation (e.g., the "half-year rule").  These proposed changes can be found in Annex 2 of the 2014 Budget, under Business Income Tax Measures.

Detailed legislative proposals are included in the Notice of Ways and Means Motion tabled March 22, 2016.

 

Revised: March 22, 2016

 

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