Part 2: Corporate Federal Taxes Changes

2.  Replacement of Eligible Capital Property by Capital Cost Allowance (Class 14.1)

Eligible Capital Properties (ECP) include Goodwill, Customer Lists, Trademarks, Incorporation Costs etc..  Many of them are recorded as intangible assets in the financial statements. 

Under the old rule, 75% of the costs are included in Cumulative Eligible Capital (CEC) and amortized by 7% each year using declining balance method.  Starting January 1, 2017, the CEC is replaced by Capital Cost Allowance (CCA) Class 14.1 and is depreciated using declining balance method with 5% depreciation rate.  In addition, the first $3,000 of incorporation expenses that occurs after January 1, 2017 are expensed rather than added to a CCA class.

The following transition rules are applied to CEC balance before January 1, 2017:

• Starting January 1, 2017, the opening balance of the new CCA class = the existing balance of the CEC pool for the business.
• For ECE occurred before January 1, 2017, the rate will be 7% for the first 10 years.
• For the expenditures (that are greater than $500 per year) incurred before 2017, the business is allowed to deduct them as CCA.

In Summary:

ECP is replaced by CCA (Class 14.1)

• Eligible Capital Property is replaced by a new CCA class of 14.1 and depreciated using declining balance method with 5% depreciation rate.
• The first $3,000 of incorporation expenses that occurs after January 1, 2017 are expensed 
• Transition rules apply to ECP that has balances before January 1, 2017.

For more information, please contact us @ 604-639-3229 or info@theresalocpa.ca

Note:  All information relating to the new CCA Class 14.1 above is available from Government of Canada website.

By Theresa Lo, CPA, CGA

October 7, 2017