Ontario budget: Accelerated capital cost allowance

Victor Fedeli, the Minister of Finance of Ontario, tabled his government's 2019-2020 budget yesterday afternoon. The budget contains few fiscal measures; the main measures are intended to promote investment.

Ontario Job Creation Investment Incentive

The budget proposes harmonizing the following measures announced by the federal government in the fall of 2018: 

Accelerated Investment Incentive

The Accelerated Investment Incentive is a temporary measure that will allow businesses to write off the cost of assets acquired after November 20, 2018, more rapidly. The enhanced deduction will effectively suspend the half-year rule and will generally be calculated by applying the prescribed capital cost allowance rate (CCA) for a class to one-and-a-half times the net addition to the class for the year, which, in essence, equals three times the half rate. 

The enhanced deduction does not alter the total CCA over the lifetime of the asset; the higher deduction taken in the first year is eventually offset by lower deductions in subsequent years. 

The Accelerated Investment Incentive will generally apply to all physical assets, including buildings, and to intangible assets, such as patents. It will not apply to asset classes 53 (manufacturing and processing machinery and equipment), 43.1 and 43.2 (clean energy equipment), which are covered by specific measures, as described below. 

The Accelerated Investment Incentive will gradually be reduced for assets ready to be put into use after 2023, and eliminated completely for assets ready to be put into use after 2027. 

Accelerated capital cost allowance for manufacturing and processing equipment (class 53) and clean energy equipment (classes 43.1 and 43.2) 

The enhanced capital cost allowance will apply at the rate of 100% for the first year for assets in classes 43.1, 43.2 and 53 that were acquired after November 20, 2018, and will be ready to be put into use before 2024. The rate drops to 75% for assets that will be ready to be put into use in 2024 and 2025, and to 55% for 2026 and 2027. The enhanced allowance will be completely eliminated for assets that will be ready to be put into use after 2027. The half-year rule will be suspended for assets eligible under this measure. 

Other measures

The budget also proposes the following measures for businesses: 

  • The government will review the cultural media tax credit certification process to streamline administration, reduce the tax credit application backlog and help companies receive their tax credits faster.
  • To enable smaller video game developers to apply for the tax credit annually as specialized digital game corporations (rather than having to apply separately for each product they complete), the minimum expenditure would be reduced from $1M to $500,000. This proposal would be effective for taxation years commencing after April 11, 2019. 
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This document is intended to provide information of a general nature, which is not to be considered as tax advice. Although reasonable measures have been taken to ensure the accuracy of this information, Desjardins does not provide any guarantee of its accuracy.

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