The ‘Immediate Expensing’ tax incentive program offered by the Federal Government is coming to an end on December 31st. To help ensure that you’re making the most of this incentive, it is essential to understand the concept of immediate expensing and the actions you should take before the upcoming December 31, 2023 deadline.
Immediate Expensing: What Is It?
Immediate expensing, also known as accelerated depreciation, is a tax incentive that allows business owners to deduct the full cost of designated immediate expensing property (“DIEP”) in the year they are purchased, as opposed to depreciating their cost over time. The aim is to stimulate economic growth by providing businesses with an incentive to invest in new equipment, technology, and infrastructure.
Immediate Expensing: How to Take Advantage
In order to benefit from this opportunity, construction company owners should pay close attention to the following key points:
- Eligible Assets: Not all assets are eligible for immediate expensing. While the list is extensive, there are certain CCA (Capital Cost Allowance) classes that do not qualify. In general, these are assets that have an extensive lifespan, i.e. buildings, roads, pipeline equipment used in oil and natural gas distribution, as well as intangible assets such as goodwill, franchise rights or licenses for an unlimited period.
- Limitations: Keep in mind that there are limits to the amount you can expense. In any given year, the maximum cost of DIEP cannot exceed $1.5 million. Furthermore, this threshold must be shared amongst associated corporations in the same way as the Small Business Deduction.
- Deadlines: To claim immediate expensing for the 2023 tax year, assets must be purchased and available for use prior to December 31, 2023.
Actions to Take Before the Deadline
Now that you understand the significance of immediate expensing and its benefits for your company, here are some actions to take before the December 31, 2023 deadline:
- Asset Inventory: Begin by conducting a comprehensive inventory of your assets to identify which ones need replacing and are eligible for immediate expensing. This may include equipment, vehicles, and any other depreciable property that meet the criteria.
- Consult a Tax Professional: While the immediate expensing opportunity is simple at a high level, understanding the nuances warrants consultation with a tax professional who specializes in construction companies and is well-versed in the regulations. They can help you navigate the specific rules and maximize your tax savings.
- Keep Accurate Records: Detailed record-keeping is essential to support your claims for immediate expensing. As noted above, in addition to the purchase being made on or before December 31, 2023, the asset acquired must be available for use. Maintain appropriate documentation of purchases and ensure it is readily accessible.
- File Accurate Tax Returns: When filing your corporate tax returns, make sure to properly designate purchases for immediate expensing for all eligible assets. Failure to do so means missing out on potential tax savings.
Immediate expensing is a valuable tax incentive that can benefit business owners. By understanding the rules, identifying eligible asset purchases, and taking the appropriate actions before the December 31, 2023 deadline, you can benefit from significant tax savings and also invest in your business. The tax team at GGFL can help you assess opportunities and ensure your purchases fall within the guidelines.
