50 What is the Accelerated Investment Incentive and what are the basics of how it works?

Addan Ayaz

The accelerated investment incentive (AII) began in Canada in 2018. It was introduced as a means to encourage corporations to invest in more capital assets as there is now added benefits to doing so, however, it is only a temporary measure and will be phased out by 2028.

The accelerated investment incentive is just a temporary change to the Capital cost allowance (CCA). CCA works as a tax deduction representing a capital asset’s depreciation.

The main benefit of the AII is that it allows for a larger CCA deduction within the first year of acquiring an eligible depreciable asset. For most assets purchased after November 20, 2018 the AIC provides two main advantages:

  • No half-year rule applied in the year of acquisition
  • Net additions for the year (additions less disposals) are multiplied by 1.5 X the CCA rate for the class of assets.  

Both of these new rules create a big increase in the amount of CCA that can be claimed in the year of acquisition.  Prior to this incentive, in the year that equipment was acquired the taxpayer could only claim CCA on half of its value in the year of acquisition. This is known as the half year rule and is not applicable under the accelerated investment incentive.

It is important to remember that the AII does not affect the overall amount a taxpayer can deduct. The AII only increases the CCA deduction in the first year, ultimately allowing for decreased deduction throughout the following years. The decreased CCA deduction in the following years would be due to the UCC amount carried forward being less after using AII for the first year.  

Example by Panveer Kaur:

3C’s Inc has the UCC balance of $100 at the beginning of 2018 of Class 10 and purchased an additional property of $200 in January. In 2019, it purchased additional eligible asset of $200. In 2020, it acquired an eligible asset of $300 and disposed the property for $150, which has a capital cost of $200.

Calculation Steps

2018

2019

2020

UCC at the beginning (A)

$100

$240

$278

Additions

$200

$200

$300

Disposition during the year: Lessor of

Proceeds of Disposition

Capital cost

($150)

Net Additions during the year (B)

$200

$200

$150

50% of net eligible additions as per AII rules (C)

N/A

$100

$75

Half-year rule (D)

($100)

N/A

N/A

Adjusted UCC for CCA calculation(A+B+C-D)

$200

$540

$503

CCA= 30% * adjusted UCC

($60)

($162)

($151)

Less: 50% of net eligible additions as per AII rules

N/A

($100)

($75)

Add: 50% of Half year rule deductions

$100

N/A

N/A

UCC at the end of 2020

$240

$278

$277

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References and Resources:

January 2020