Eligible Capital Expenditure

Eligible capital expenditure

You may buy property that has no physical existence, but gives you a lasting economic benefit. Some examples are milk and egg quotas. We call this kind of property eligible capital property. The price you pay to buy this kind of property is an eligible capital expenditure.

Annual allowance

You cannot fully deduct an eligible capital expenditure because the expenditure is considered to be capital in nature and provides a lasting economic benefit. However, you can deduct part of its cost each year. We call the amount you can deduct your annual allowance.

Cumulative eligible capital (CEC) account

This is the bookkeeping record you establish to determine your annual allowance. You also use your CEC account to keep track of the property you buy and sell. We call the property in your CEC account your eligible capital property. You base your annual allowance on the balance in your account at the end of your fiscal period. Keep a separate account for each business, but include all eligible capital property for the one business in the same CEC account.

Calculating your annual allowance

For the chart and instructions for calculating your annual allowance and the balance in your CEC account, see Chapter 5 of Guide T4003, Farming Income.

Sale of eligible capital property and the capital gains deduction

Part of your farming income from the sale of eligible capital property (ECP) that is qualified farm property may be eligible for the capital gains deduction. For more information on qualified fishing property, see Chapter 7 of guide T4003, Farming Income. For the charts to calculate the amount eligible for the capital cains deduction from the sale of ECP, see Chapter 5 of guide T4003, Farming Income.

Eligible capital property of a deceased taxpayer

Upon death, a taxpayer is deemed to have disposed of eligible capital property immediately prior to death, for proceeds of disposition equal to 4/3 of the cumulative eligible capital property at that time.

Partnerships

A partnership can own eligible capital property and deduct an annual allowance. Any income from the sale of eligible capital property the partnership owns is income of the partnership. For more information about eligible capital expenditures, see Chapter 5 of guide T4003, Farming Income.

Forms and Publications

• Guide T4003, Farming Income
• Guide T4002, Business and profession Income
• Interpretation Bulletin IT-123, Transactions Involving Eligible Capital Property
• Interpretation Bulletin IT-143, Meaning of Eligible Capital Expenditure
• Interpretation Bulletin IT-259, Exchanges of Property

Related topics

• Eligible capital expenditures