Immediate Expensing ($1.5M)

Definition

Immediate expensing is a temporary incentive that allows a Canadian-controlled private corporation (CCPC), and later certain unincorporated businesses, to deduct 100% of the cost of eligible depreciable property in the year it becomes available for use, up to $1.5 million per taxation year shared across an associated group. The rules were introduced in Budget 2021 and enacted in 2022. For CCPCs, the incentive applied to property available for use on or after April 19, 2021 and before January 1, 2024. Confirm in 2026 whether any extension or successor program is in force before relying on immediate expensing for a current-year acquisition.

Key rules

• Eligible Persons and Partnerships (EPOPs):
  • CCPCs: property acquired on or after April 19, 2021 and available for use before January 1, 2024.
  • Individuals resident in Canada and Canadian partnerships with individual or CCPC members only: property acquired on or after January 1, 2022 and available for use before January 1, 2025.
  • After those dates, the legislated program ended for acquisitions; 2026 acquisitions therefore rely on ordinary CCA or AIIP.
• $1.5M annual cap (Regulation 1104(3.1)):
  • Shared across associated corporations, similar to the Small Business Deduction limit.
  • Pro-rated for short tax years.
  • No carry-forward of unused cap.
• Eligible classes: all CCA classes except 1 to 6 (buildings and related), 14.1 (Class 14.1 intangibles), 17 (roads and similar), 47 (transmission and distribution), 49 (pipelines), and 51 (natural gas distribution). Classes 10.1 (luxury passenger vehicles) are included but subject to the prescribed capital cost limit.
• No half-year rule applies to property that is immediately expensed.
• Recapture and terminal loss rules still apply to the UCC pool in the normal way when the asset is later sold.

Example

A CCPC with a December 31, 2023 year end acquired a $900,000 packaging line (class 29 pre-2024 or class 53) on June 10, 2023 and a $400,000 set of class 8 equipment on August 1, 2023. It is not associated with any other corporation, so the full $1.5M cap is available.

1. Eligible for immediate expensing: $900,000 + $400,000 = $1,300,000. Under the $1.5M cap.
2. Deduction in 2023: $1,300,000 as immediate expensing. UCC at year end for those classes is zero for the newly acquired property.
3. No half-year rule applied. AIIP would have given roughly half this amount under the 1.5× rule, so immediate expensing was the better choice.

For 2026 acquisitions, the original legislated window has closed, so the corporation falls back to AIIP (phased down to 1.25×) and the ordinary class rate.

Common mistakes

• Applying immediate expensing to 2026 acquisitions without confirming that an extension was legislated. The original program ended at the end of 2023 for CCPCs and at the end of 2024 for individuals and qualifying partnerships.
• Double-claiming AIIP and immediate expensing on the same property. The taxpayer can claim one or the other, not both.
• Forgetting to share the $1.5M cap across associated corporations. CRA adjusts excess claims and charges arrears interest.
• Immediately expensing buildings or class 14.1 intangibles. They are excluded classes.
• Ignoring the pro-ration for short tax years. A six-month fiscal year has a $750,000 cap.

Related concepts

Immediate expensing is a CCPC-only (originally) alternative to AIIP and modifies the normal CCA calculation. When an immediately expensed asset is later sold, recapture or terminal loss may arise.