The Federal Budget proposes the following tax changes for businesses.
Immediate expensing of depreciable property
The Budget proposes to allow Canadian Controlled Private Corporations (CCPCs) to immediately expense eligible acquisitions for tax purposes up to a maximum amount of $1.5 million per taxation year. This change will apply for eligible depreciable property acquired on or after April 19, 2021 and that becomes available for use prior to 2024. The $1.5 million limit must be shared among associated members of a group of CCPCs and will be prorated for short taxation years. Eligible property for this measure will not include assets with longer depreciation periods that is property in CCA Classes 1 to 6, 14.1, 17, 47, 49, and 51, which includes buildings, structures, goodwill, parking lots, and pipelines. This measure should provide assistancefor CCPCs to make capital investments to grow their businesses.
Tax rate reduction for zero-emission technology manufacturers
The Budget proposes to temporarily reduce corporate income tax rates for qualifying companies involved in zero-emission technology manufacturing or processing activities. The new corporate tax rate will be 7.5% where that income would otherwise be taxed at the 15% general corporate tax rate, and 4.5% where that income would otherwise be taxed at the 9% small business tax rate. The reduced tax rates will apply to taxation years that begin after 2021 and will gradually start to be phased out in taxation years that begin in 2029 and be fully phased out for taxation years that begin after 2031.
Taxpayers that have income subject to both the general and small business tax rates will be able to choose to have their eligible income taxed at either of the reduced rates of 4.5% or 7.5%. The amount of income taxed at 4.5% plus the amount of income taxed at the small business rate of 9% cannot exceed the business limit.
Capital cost allowance (CCA) for clean energy equipment
The Budget proposes to expand the assets included in CCA Classes 43.1 and 43.2 that allow for accelerated tax deductions to support investment in clean technologies. This proposal is applicable to qualifying property that is acquired and becomes available for use on or after April 19, 2021.
Film or video production tax credits
The Budget proposes to temporarily extend certain timelines for both the Canadian Film or Video Production Tax Credit and the Film or Video Production Services Tax Credit. This is in recognition of the disruptions to film and video productions caused by the COVID-19 pandemic.
Mandatory disclosure rules
The government announced it will consult on proposals to enhance Canada's mandatory disclosure rules. In addition to new requirements to report notifiable transactions, certain larger taxpayers will need to disclose uncertain tax positions.
Avoidance of tax debts
Canadian tax law has an anti-avoidance rule designed to prevent taxpayers from avoiding their tax liabilities by transferring assets to non-arm's length persons for insufficient consideration. To address tax planning designed to avoid these rules, the Budget proposes a number of measures that will apply to transfers undertaken on or after April 19, 2021.