Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
“The eligibility for the higher CCA rate is not automatic.”
For buildings or additions constructed after March 18, 2007 proposed legislations allow a taxpayer to elect to use an increased capital cost allowance (CCA) rate of 8% or 10%. The 10% rate applies where at least 90% of the floor space of the building is used for manufacturing and processing in Canada of goods for sale or lease.
The present value of the tax savings from the additional 4% to 6% CCA (on a declining balance) may be significant.
The eligibility for the higher CCA rate is not automatic. The proposed legislation allows the use of the higher CCA rate only where an election is made. The election can only be made by attaching a letter to the tax return for the taxation year in which the addition occurs. There is no proposed provision in the Income Tax Act that permits the late filing of this election. We have not seen any administrative comments on this provision but, merely, using the higher CCA rate on the tax return would not appear to constitute a valid election.
According to the proposals, the election will not be considered late if it is filed within 90 days from publication of the passing of the legislation in the Canada Gazette. As the legislation regarding these rules is still in draft form, no announcement has been published in the Canada Gazette.
There is still an opportunity to obtain this higher CCA rate on a building even if the tax return for the year has been filed with the wrong rate or the correct rate, but no written election. An amendment to the tax return with a statement electing to use the new rate should be accepted since the deadline for the election has not yet expired.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.