Important News: The Government of Canada Tax Relief Economic Action Plan for New Manufacturing Machinery and Equipment is ending December 31, 2015
Tax Relief Initiative is being discontinued as of December 31, 2015, this is your last chance to take advantage of this accelerated tax write off for equipment purchases:
For the last few years the Canadian government has been allowing an accelerated tax write off for equipment purchases, where the end user was able to write off the entire purchase over three years.
For example if they buy now they can write off:
25% on 2015 taxes
50% on 2016 taxes
25% on 2017 taxes
The program is ending at the end of this month so If they purchase equipment prior to the end of this December they are still eligible for the write off:
You can elect to put in Class 29 eligible machinery and equipment used in Canada for the manufacture and process of goods for sale or lease, acquired after March 18, 2007, and before 2016 that would otherwise be included in Class 43. To make an election, attach a letter to your income tax return for the tax year you bought the property indicating you are electing to put the property in Class 29. Regular Class 43 treatment will apply to these eligible assets that are acquired after 2015.
Calculate CCA using the straight line method as follows: claim up to 25% in the first year, 50% in the second year, and the remaining 25% in the third year. Any amount not claimed in a year can be claimed in a later year.
But purchases after December 31, 2015:
Class 43 (30%)
Include in Class 43 with a CCA rate of 30% eligible machinery and equipment, used in Canada for the manufacture and process of goods for sale or lease, that are not included in Class 29.
You can put this property in a separate class if you file an election by attaching a letter to your income tax return for the year in which you acquired the property. For information on separate class elections, see note in Class 8 (20%).
The write off is on the depreciated amount each year so it actually takes forever to completely write off the equipment.
More on this from our previous post:
The Government of Canada, in recognition of the ongoing uncertainty in the global economy, Economic Action Plan 2013 announces an extension of the temporary accelerated capital cost allowance (CCA) for new investment in machinery and equipment in the manufacturing and processing sector for an additional two years. This will enable manufacturing and processing companies to plan and invest, and help create jobs in a sector that was particularly hard hit by the global recession.
About the Initiative
The CCA system determines how much of the cost of a capital asset a business may deduct each year for tax purposes. Advancing the timing of capital cost deductions for tax purposes defers taxation and improves the financial return from investment in particular assets.
Currently scheduled to expire at the end of 2013, the 50% straight line depreciation rate will be extended for two years to include investment in eligible manufacturing or processing machinery and equipment in 2014 and 2015. By allowing a faster write-off of eligible investments, this measure provides concrete support to businesses in the manufacturing and processing sector to help them retool with new machinery and equipment to remain competitive in the current global environment.
For example, a manufacturer that purchases an eligible machine for $10,000 is able to deduct $2,500 in the first taxation year (because of the half-year rule, which requires that the asset be treated as if purchased in the middle of the taxation year), $5,000 in the second taxation year, and the remaining $2,500 in the third taxation year. In the absence of the temporary accelerated capital cost allowance, the machine would be depreciated at a 30% declining-balance rate, resulting in lower annual deductions from income over a much longer period of time (i.e., the depreciation period would be nine taxation years to deduct 95% of the value of the machine).
In total, more than 25,000 businesses in the manufacturing and processing sector that employ Canadians in all regions of the country have taken advantage of the accelerated capital cost allowance since it was first introduced in 2007. Extending the measure for two more years will help the manufacturing and processing sector to continue increasing its investment levels, which have been rebounding over recent years.
Key stakeholders such as the Canadian Manufacturers & Exporters have identified support for investment in capital equipment and technologies as the top priority to increase efficiency and improve productivity. Extending the accelerated capital cost allowance for two additional years will help Canada’s manufacturing and processing sector to accelerate and undertake additional investment in advanced machinery and equipment. Adopting new and innovative technologies to increase productivity will allow businesses in Canada to meet current economic challenges and improve their long-term prospects, helping them to compete globally while creating jobs and growth in all parts of Canada.
For more information: