New Capital Cost Allowance Changes: Do Small Business Owners Benefit?Posted: March 12, 2019
Posted in: Strategic Thinking, Current Issue, self-employed, corporate tax, capital cost allowance, proprietorship, tax filing for proprietorships, tax accounting for proprietorships, Capital Expenditures
Knowledge Bureau has released a newly updated certificate course to train advisors on the nuances of filing tax returns for small businesses. The big tax change this tax season is proving to be a bit of a headache: how to handle new capital cost allowance claims under the new Accelerated Investment Incentive. Good news: this new course covers the issue with great examples and case studies.
The Backdrop: In the fall, Finance Canada introduced new incentives with the goal of closing Canada’s economic competitiveness gap: accelerated capital cost allowance claims for businesses investing in capital assets. But will this help Canada’s small business owners? The good news is yes!
According to the CRA “eligible property currently subject to the half-year rule will, in essence, qualify for an enhanced CCA equal to three times the normal first-year deduction. Eligible property not subject to the half-year rule (e.g., patent, franchise or limited-period license) will qualify for one-and-a-half times the normal first-year deduction.
For proprietorships specifically, whether or not capital cost guidelines are affected depends on the class of an expense and if it’s eligible for the new Accelerated Investment Incentive by virtue of its acquisition date. Here are the details:
Acquisition Dates. On November 21, 2018, the minister announced changes that would temporarily circumvent the half-year rule. For purchases of capital property after November 20, 2018, and before December 31, 2023, the first-year claim for all classes except 53, 43.1 and 43.2 will be 150% of the normal claim rate. For purchases in years 2024 to 2027, the claim will be 125% of the normal claim rate. For purchases after 2027, the regular half-year rule will apply.
First Year Rules. For most classes of assets, the newly introduced accelerated first-year claims improve the cash-flow of the asset purchaser because their tax bill in the year of acquisition is reduced. Over the life of the asset, though, the total amount claimed for CCA is not affected. This is because recapture and terminal losses will reconcile the CCA claims to the actual decrease in value of the assets. For assets in a pool with other assets of the same class, this final reconciliation may be delayed until the last of the assets in the class has been disposed of.
The new rules are complicated and procedures for claiming them are further complicated by a new CCA form. But here’s what’s important according to the CRA, “By claiming a larger CCA deduction in the first year, you will have smaller CCA deductions in future years. For classes where the CCA is calculated on a declining-balance basis, the incentive will automatically reduce the UCC available in respect of the property in subsequent years.”
Knowledge Bureau’s newly updated Tax Accounting for Proprietorships certificate course is designed to teach professional advisors tax filing and planning strategies with case study examples and practical “what if” scenarios using CRA's prescribed forms: Statement of Business or Professional Activities, Capital Cost Allowance statements, and worksheets for reporting expenses relating to home office, automobiles, other assets, inventory control, and cost of goods sold.
Students will learn specifically how to complete the income statement for the self-employed, partnerships, farmers, fishermen, and professionals, using the most recent tax laws and budget proposals so that taxpayers arrange affairs within the framework of the law to pay the least taxes possible.
Specific skillsets taught include:
- Taxation of income from a proprietorship
- Reporting requirements – GST/HST
- Claiming business expenses
- Transactions involving business assets
- Home-based businesses
- Hiring human resources
- Inventory-based businesses
- Disposing of and replacing a business
- Farming and fishing enterprises
- Professionals and partnerships
Enrol today, or get a sneak peek by taking a free trial.
Additional educational resources: Prefer to learn more about tax changes affecting small businesses and proprietorships through an in-person learning environment? The Fall CE Summit workshops, travelling to four Canadian cities in November 2019 will focus on year-end planning for investors and small businesses.
Are you an advisor looking to provide educational resources to your small business owning clients? Provide them with a copy of Defusing the Family Business Time Bomb, by Evelyn Jacks and Jenifer Bartman.
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