How The CRA AII Program Increases the Tax Deduction for Computers and Other Fixed Assets

In the fall of 2018, the federal government decided to introduce a tax incentive called the Accelerated Investment Incentive (AII). The purpose of this program was to stimulate business investment by increasing the amount of capital cost allowance (CCA) on depreciable property (the terminology, sadly, is a bit less stimulating). In layman’s terms, it means you could claim a higher amount of depreciation on assets such as computer, equipment, furniture etc, in the year of purchase, thereby reducing your taxes in the short term.

Most Common CCA Classes That Benefit from the AII Program

In this article, I am specifically referring to CCA Classes 8, 10 and 50 which are the most common classes used by small businesses and solopreneurs.

Revenue Canada (CRA) defines these classes as follows:

Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, and tools costing $500 or more per tool, some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in the business

Class 10 with a CCA rate of 30% most commonly includes motor vehicles, as well as some passenger vehicle (unless they exceed $36,000 in 2024, in which case they are included in Class 10.1 which does not benefit from this program)

Class 50 with a CCA rate of 55% most commonly includes computer hardware and related accessories (printers, scanners, hard drives etc.) as well as systems software

How Does AII Work

Generally speaking if you were to purchase an asset such as a computer, you could claim 55% CCA in the first year.

However, the first year is subject to a provision called the half year rule. This means that you could only deduct half of the CCA rate that applies to the class in the first year.

The AII program allowed businesses to claim the full amount of the CCA rate in the first year, rather than just half, plus an additional amount. This was applicable from November 20, 2018 to 2023.

Starting in 2024, the AII still applies but at a reduced rate.

Accelerated Investment Initiative (AII) Example

In this example let’s use assume purchase of a computer in the amount of $1,000

First-Year Deduction Without AII for purchases (In general)

In the year of acquisition, the "half-year rule" generally applies. This rule permits you to claim CCA on only half of the asset's net addition to the class, effectively allowing a deduction of 27.5% (which is half of 55%) of the computer's cost in the first year.

• Without AII (applying the half-year rule):

  • First-year CCA deduction: $1,000 × 27.5% = $275

First-Year Deduction With AII for purchases from November 21, 2018 to December 31, 2023:

• With AII (suspending the half-year rule plus an additional 50% of the CCA):

  • First-year CCA deduction: $1,000 × 55% X 1.5 = $825

  • Additional tax deduction of $550

First-Year Deduction With AII for purchases in 2024 to 2027

With AII (suspending the half-year rule only):

• First-year CCA deduction: $1,000 × 55% = $550

• Additional tax deduction of $275

If you use tax software to complete your tax return, whether it is schedule T2125 on your personal tax return or schedule 8 on your corporate tax return, the tax software will automatically calculate this amount as long as you select AII. I was, however, interested in the actual mechanics of how it worked and wanted to understand specifically how it applied to 2024 and later years.

Sign up for my newsletter where I try to make finance and tax accessible to small business owners/solopreneurs with the goal of making you feel more financially confident.