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Class 12 restriction on AII (Accelerated CCA) rules

Hi all,

We have a client that has large software costs that get capitalized into class 12, to which the half year rule applies generally (ex. vs. small tools where the half year restriction is lifted for the class).

Noticed TaxCycle wasn’t calculating the accelerated rate (i.e. 100%) on additions even when we indicated them as eligible for AIIP, called support and it sounds like they got that direction from CRA.

I don’t see where this restriction on class 12 would come from. We talked with a senior agent at CRA and they pointed to a “computer software tax shelter” exception, which I haven’t found a clear definition of, but I believe tends to apply to situations where the amount being capitalized isn’t paid for in cash (ex. 70% debt financed with a note due in 20 years).

Have found nothing else to support CRA’s position re: the class 12 restriction for legitimate software costs that are paid for in cash, but have found multiple articles that seem to indicate the 100% rate should apply:

Wondering if anyone provide further clarity, or support for CRA’s position?

I called the CRA back and spoke with another senior agent to discuss the “computer software tax shelter” exception that our employee was pointed to earlier, and he agreed that the tax shelter rules would not apply generally to capitalized computer software.

Difficult to find support, but he was able to find a statement in the fall economic update 2018 (so at least coming right from the gov’t) indicating a 100% rate would apply on computer software, which aligns with the articles above. It doesn’t necessarily indicate class 12 unfortunately, but the 50% normal first year deduction indicated in table 3.1 does line up with class 12:

https://www.budget.gc.ca/fes-eea/2018/docs/statement-enonce/chap03-en.html#s2

I’ve changed this thread to be categorized as a bug report because we haven’t been able to find anything yet to support a class 12 AII exception.

Hi @rick.s,

Class 12 is eligible for accelerated CCA and any post Nov 20/18 addition to it (whether half year rule applies or not) is eligible for 100% CCA in the year of acquisition.

When half year question in S8Asset == No, TaxCycle currently correctly claims 100% of CCA in the year of acquisition. However, when this question is answered Yes, TaxCycle only applies 50% of CCA when it should calculate 100% of CCA. This is a bug and a fix is on its way soon.

To get around it, please answer No to the half year question in S8Asset for class 12. My apologies for any inconvenience this may have caused.

Steven

Thanks @Steven - much appreciated, as always!