Immediate Expensing for Canadian Businesses
Are you a Canadian business owner looking to save on taxes? You might have heard of immediate expensing, a tax deduction method that allows businesses to deduct the full cost of eligible assets in the year of purchase, rather than depreciating them over several years. This tax deduction method can provide a significant tax benefit for businesses, especially since it allows for a 100% deduction in the year of purchase. In this blog post, we’ll provide an overview of immediate expensing in Canada, the eligible and excluded assets, and the gradual phase-out of this tax deduction.
Immediate expensing was introduced in Canada in the 2018 federal budget. It was introduced to encourage businesses to invest in assets that would enhance productivity. It was then expanded in the 2021 federal budget. This tax deduction is available for eligible assets, which are those that fall under certain classes of the Canadian Income Tax Regulations.
What is Included?
Eligible assets include:
- manufacturing and processing equipment;
- clean energy generation and conservation equipment;
- computer hardware and software;
- certain vehicles used for business purposes, and more.
However, not all assets are eligible for immediate expensing. There are some excluded classes, such as buildings, land, and goodwill. Additionally, immediate expensing is only available for assets that are acquired after November 20, 2018, and before 2028.
How does it work?
Immediate expensing allows businesses to deduct the full cost of eligible assets in the year of purchase. Normally these businesses would have to capitalize on these and expense them over several years. The option to expense them in the current year can provide a significant tax benefit for businesses. The tax savings is also immediate rather than over a number of years. However, it’s important to note that this tax deduction is only available for a short time. Starting in 2024, the immediate expensing deduction will be phased down to 75%. This will be followed by further reductions until the tax deduction is eliminated in 2028.
Despite the phase-out, immediate expensing can still provide a significant tax benefit for businesses, especially for those that are just starting or looking to upgrade their equipment. By allowing businesses to deduct the full cost of eligible assets in the year of purchase, businesses can receive a significant tax benefit. This tax benefit can help businesses reinvest in their operations, grow their business, and improve their cash flow.
At our accounting firm, we understand that tax laws and regulations can be confusing. That’s why we have a team of experienced tax professionals who can help you navigate the complex tax laws and regulations in Canada. Contact us today to learn more about how immediate expensing can help your business save on taxes and grow your operations. With our expertise and knowledge, we can help you maximize your tax savings and achieve your business goals.
Contact us at www.vhaccounting.ca/contactus or follow our blog on your chosen social media source. This blog is intended for general use and understanding and does not replace direct professional advice.