32 What is the Accelerated Investment Incentive and how does it work?

Accelerated Investment Incentive (AII) allows businesses to claim one and a half times CCA on net eligible property additions in the first year of purchase of the property. The property will qualify as an eligible property if that is acquired after November 2018 and becomes available for use before 2028. This rule is only applicable to arm’s length transactions.

Furthermore, Accelerated Investment Incentive also allows businesses to deduct 100% of the capital cost of Class 53, Classes 43.1, and 43.2 assets in the year of acquisition of these assets.

Under accelerated investment incentive, businesses will add the 50% of net eligible property additions to adjust UCC to claim one and a half times CCA, whereas, under the half-year rule, businesses used to deduct 50% of net additions in the first year of purchase. This incentive will allow businesses to claim larger CCA in the first year without changing the total amount of CCA that can be claimed over the life of the asset.

Example:

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.

(Example by Mathew Andrews):

Andrews Ltd. acquired the following assets in 2018 and 2019. The 2018 asset was acquired prior to November.

2018:

• – A new building intended to act as a warehouse for $400,000.

2019:

• – New office desks for $4,000.
• – A general-purpose computer for $2,000, which the office manager bought from his brother.
• – A zero-emission Tesla Cybertruck for delivery purposes for $60,000.

How would each asset be treated in terms of CCA in the years they were acquired? Consider the half-year rule and/or accelerated investment incentive for each item.

Building: Class 1

Because the building was acquired before November of 2018, it is not eligible for the accelerated investment incentive. The building would fall under class 1 (see ITR Schedule II, Class 1 (q)) and would likely have a CCA rate of 4% (there are lots of specific rules on the CCA rates for buildings but they are beyond the scope of this example). Since it does not qualify for the accelerated investment incentive, it will also be subject to the half-year rule. The first year CCA would be calculated as follows:

(400,000 / 2) * 4% = $8,000

Office Desks: Class 8

Because the office desks were acquired after November of 2018, they are eligible for the accelerated investment incentive and therefore will not be subject to the half year rule. The desks, being furniture, fall under Class 8 (see ITR Schedule II Class 8 (i)) and will have a CCA rate of 20% per the calculation below:

(4,000 * 1.5) * 20% = $1,200

Computer: Class 50

It is notable that the computer was purchased from a blood relative of the office manager. Because of this, the transaction was not dealt at arm’s length. Since the accelerated investment incentive doesn’t apply to non arms-length transactions, the computer is subject to the half-year rule. As a class 50 asset (see ITR Schedule II, Class 50), CCA will be calculated as per below.

(2,000 / 2) * 55% = $550

Cybertruck: Class 54

Because the Cybertruck is a zero emission vehicle and is not intended to be rented out, it is classified under class 54 and has a limited prescribed CCA amount of $55,000. Class 54 assets are also eligible for the accelerated investment incentive which for the class is an immediate write-off of 100% of the asset. This is calculated as below:

55,000 * 100% = $55,000

Interactive content (Author: Wahaj Awan, January 2020)

Interactive content (Author: Danica McCormack, January 2020)

References and Resources:

• Article – “Accelerated Investment Incentive” (Author: Government of Canada)

January 2020