December 6, 2023 by Luther VanGilst

The end of immediate expensing

When the immediate expensing rules were introduced in 2021, they allowed incorporated businesses to start fully expensing purchases, claiming up to $1.5 million in tax depreciation on eligible property acquired annually. This applies to a broad range of purchases, including tractors, combines, planters, cultivators and processing equipment ⁠–⁠ almost everything in a farm context except buildings, paving and quota ⁠–⁠ but corporations will no longer be able to access this opportunity in 2024.

Time is running out

When the immediate expensing rules were introduced, it was made clear this is a limited opportunity that only applies to assets acquired and available for use before the end of December 2023. In other words, if your corporation is planning a purchase and you want to do this in the most advantageous way possible, that purchase should be made this year.

The old rules

Prior to immediate expensing, the government introduced the accelerated investment incentive, which provides an enhanced first‑year allowance for certain eligible property that is subject to the capital cost allowance (CCA) rules. That's the system we will return to when immediate expensing is no longer available, and these accelerated rates will still be available through the end of 2027, at which point we will go back to the half‑year rule. Under the half‑year rule, businesses get half the depreciation rate in the year they purchase an asset. For example, a Class 10 asset (i.e. tractors, combines) has a general CCA rate of 30 per cent. Under the half‑year rule, you'd only get a rate of 15 per cent in the year of purchase, whereas the current rules allow you to get 100 per cent in the first year and the accelerated rules ⁠–⁠ which will return when immediate expensing comes to an end ⁠–⁠ allow you to get 45 per cent.

There’s still time

If you have an incorporated farm and you’re looking to replace a tractor in the near future, there are significant tax advantages if you make this purchase before the end of 2023. If you wait until 2024, your write off will be significantly reduced, from 100 per cent to 45 per cent. However, you will make the most of your last chance to take advantage of these rules if you purchase the asset and get it in your yard before the end of December. To qualify, farm equipment has to be received before the deadline, but it doesn’t have to be used before the end of the year. For example, a combine purchased in 2023 after harvesting is completed ⁠–⁠ which won’t be used by the farm until the following season ⁠–⁠ still qualifies under farm‑specific available‑for‑use rules.

Partnerships and proprietorships

If your business operates as a partnership or a proprietorship, there’s good news: since your three‑year window started a year later than the window for corporations, you have an extra year to take advantage of the immediate expensing rules. But rather than wait a year to work out what assets you need to purchase, make the most of your extra time by planning any strategic purchases well in advance.

Meet the Author

Luther VanGilst Luther VanGilst
Winchester, Ontario
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