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For buildings or additions constructed after March 18, 2007 proposed legislations allow a taxpayer to elect to use an increased capital cost allowance (CCA) rate of 8% or 10%. The 10% rate applies where at least 90% of the floor space of the building is used for manufacturing and processing in Canada of goods for sale or lease. The present value of the tax savings from the additional 4% to 6% CCA (on a declining balance) may be significant. The eligibility for the higher CCA rate is not automatic. The proposed legislation allows the use of the higher CCA rate only where an election is made. The election can only be made by attaching a letter to the tax return for the taxation year in which the addition occurs. There is no proposed provision in the Income Tax Act that permits the late filing of this election. We have not seen any administrative comments on this provision but, merely, using the higher CCA rate on the tax return would not appear to constitute a valid election. According to the proposals, the election will not be considered late if it is filed within 90 days from publication of the passing of the legislation in the Canada Gazette. As the legislation regarding these rules is still in draft form, no announcement has been published in the Canada Gazette. There is still an opportunity to obtain this higher CCA rate on a building even if the tax return for the year has been filed with the wrong rate or the correct rate, but no written election. An amendment to the tax return with a statement electing to use the new rate should be accepted since the deadline for the election has not yet expired. TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes. |