CCA, AII, and Immediate Expensing for Canadian Businesses

As Canadian businesses approach the end of 2025, tax planning remains a key activity for maximizing deductions and optimizing cash flow. The treatment of business assets—particularly through Capital Cost Allowance (CCA), the Accelerated Investment Incentive (AII), and Immediate Expensing rules—offers significant opportunities for savings. The following outlines the latest updates to these tax measures, highlights the changes for 2025, and provides practical year-end planning tips for Canadian enterprises.

Understanding CCA, AII, and Immediate Expensing

Capital Cost Allowance (CCA)
CCA allows Canadian businesses to deduct the cost of depreciable property over multiple years. Asset classes such as machinery, vehicles, and computers have specific write-off rates. This approach aligns tax deductions with asset usage by spreading costs across the asset’s useful life.

Typically, only 50% of the standard CCA is allowed in the year an asset is purchased. This “half-year rule” limits the initial deduction. For example, for a Class 10.1 asset with a 30% depreciation rate, the CCA would be 15% in the first year.

Accelerated Investment Incentive (AII)
The Accelerated Investment Incentive allows higher first-year deductions to encourage capital investment. Under AII, the half-year rule does not apply. For eligible property that becomes available for use during the 2024 to 2027 phase-out period, the enhanced first-year allowance is two times the normal first-year CCA deduction.

The incentive does not apply to Classes 54, 55, and 56, or to Classes 43.1, 43.2, and 53 (and to Class 43 in respect of property acquired after 2025 that would have been included in Class 53 if acquired in 2025), as these benefit from full expensing measures.

Example: A business purchases a Class 10.1 asset with an allowable capital cost of $38,000 in 2025. Using AII, the half-year rule does not apply, and the enhanced deduction is twice the usual first-year amount. The first-year enhanced deduction is calculated by multiplying $38,000 by 30%, resulting in a depreciation expense of $11,400.

Key Updates for 2025

Key 2025 updates affecting Canadian businesses include changes to AII and Immediate Expensing. The federal government is phasing out or revising the Accelerated Investment Incentive as it reviews stimulus programs. For 2025, however, the enhanced rate remains two times the normal first-year CCA deduction.

Under the Immediate Expensing Measures, manufacturing or processing machinery and equipment (Class 53), clean energy generation and energy conservation equipment (Classes 43.1 and 43.2 for property acquired before 2025), and zero-emission vehicles (Classes 54, 55, and 56) continue to qualify for an enhanced first-year allowance. For 2024 and 2025, the rate is 75%.

CCA claims are prorated for short tax years.

The 2024 Fall Economic Statement proposed fully reinstating the Accelerated Investment Incentive and Immediate Expensing Measures for qualifying property acquired on or after January 1, 2025, and available for use before 2030, however we have not yet seen any legislation to support this.

Year-End Planning Tips for 2025

• Time Major Purchases Strategically: If the business plans major asset acquisitions, aim to finalize purchases before year-end to maximize deductions.
• Confirm Eligibility and Acquisition Dates: Ensure that purchases qualify for Immediate Expensing or AII. If relying on AII, verify that acquisition dates fall within the qualifying period for enhanced deductions.
• Maintain Detailed Records: Keep comprehensive documentation of asset purchases, including invoices and contracts, to support CCA, AII, or Immediate Expensing claims. The CRA is increasing scrutiny in this area.
• Consult Professional Advisors: The landscape for capital asset deductions continues to evolve. Engage with your accountant or tax advisor to ensure compliance with current rules and to identify opportunities tailored to your business’s needs.

The Bottom Line

Navigating the changing rules for CCA, AII, and Immediate Expensing is essential for Canadian business owners seeking to optimize their tax positions in 2025. As these incentives are gradually phased out, year-end planning takes on even greater importance. By timing purchases carefully, understanding eligibility requirements, and seeking professional advice, businesses can make the most of these valuable tax measures and strengthen their position for future growth.