Canadian professional photographers, like many other business owners, may be thinking about income tax this time of year. They may even be thinking:
. . . prior to the introduction of the Accelerated Investment Incentive, a property in Class 8, which has a prescribed rate of 20 per cent, would be eligible for CCA of 10 per cent of the cost of the property in the year it becomes available for use, due to the half-year rule. Under the Accelerated Investment Incentive, the taxpayer will be eligible for CCA of 30 per cent of the cost of the property—that is one-and-a-half times the CCA calculated using the prescribed rate of 20 per cent or three times the 10-per-cent CCA that could otherwise be claimed in the first year.
The Accelerated Investment Incentive, which came into effect for the 2018 tax year, gives you a bigger deduction in the year of purchase of an eligible property.
(Technical note: when I write “year of purchase,” it means the year the eligible property was available for use. For photographers, the year of purchase is usually the same as the year available for use. The exception will be if you buy something in, say, December and it gets delivered to you in the following year. Eligible property is something that’s eligible for depreciation.)
There are two phases for this incentive: November 21, 2018 to December 31, 2023 and January 1, 2024 to December 31, 2027. The first phase is slightly more generous.
The Accelerated Investment Incentive doesn’t change the total amount you can deduct over the life of a property. It just allows you to claim a larger portion of the capital cost allowance (CCA) in the year of purchase. You can depreciate a property a little bit faster.
Tax form T2125 has special columns in the CCA chart for claiming the Accelerated Investment Incentive.
A Photography Example
If your tax year is the calendar year, then for the current 2019 tax year, let’s say you bought a $5,000 camera in 2019. A camera is Class 8 which has a 20% depreciation rate. (The Accelerated Investment Incentive applies to most classes, not just Class 8. However the details may vary for some classes.)
Looking at just the first three years of depreciation:
Under normal CCA rules:
In the year of purchase (2019), the camera is subject to the half-year rule so you can deduct half of the allowed 20%:
$5,000 x 1/2 (20%) = $500 deduction
In the second year, you can deduct the normal 20%:
($5,000 – $500) x 20% = $900 deduction
In the third year, you can deduct the normal 20%:
($5,000 – $500 – $900) x 20% = $720 deduction
Total 3-year deduction = $2120
With the Accelerated Investment Incentive until December 31, 2023:
In the year of purchase (2019), there’s no half-year rule and you can increase the depreciation rate by 1.5 times:
$5,000 x 20% x 1.5 = $1,500 deduction
In the second year, you can deduct the normal 20%:
($5,000 – $1,500) x 20% = $700 deduction
In the third year, you can deduct the normal 20%:
($5,000 – $1,500 – $700) x 20% = $560 deduction
Total 3-year deduction = $2760
With the Accelerated Investment Incentive from January 1, 2024 to December 31, 2027:
In the year of purchase, there’s no half-year rule:
$5,000 x 20% = $1,000 deduction
In the second year, you can deduct the normal 20%:
($5,000 – $1,000) x 20% = $800 deduction
In the third year, you can deduct the normal 20%:
($5,000 – $1,000 – $800) x 20% = $640 deduction
Total 3-year deduction = $2440
Remember that you don’t have to claim the full amount of the CCA if you don’t need it in a given tax year. You can claim a smaller amount or none at all. Unclaimed deductions can be carried forward to the next year. But the Accelerated Investment Incentive applies only in the year of purchase and cannot be rolled forward.
As always, consult with a real accountant.
This post was published in February 2020 and the government, at any time, can change the rules (Clause 4 is probably most applicable to photographers).
Please check the date of this article because it contains information that may become out of date. Tax regulations, sales tax rules, copyright laws and privacy laws can change from time to time. Always check with proper government sources for up-to-date information.
