New Tax Changes in Canada

The Finance Minister, Bill Morneau, has recently released some new (and interesting) tax changes for Canada which appear to take effect immediately. Here is a summary of the changes:

For class 43.1 and 43.2 – clean energy equipment, the same rules for class 53 will apply for purchases between November 20, 2018, and December 31, 2027. After that, the current rules will apply.

In each case, the additional first-year claim will not affect the total amount of CCA that may be claimed in respect of any asset. As is currently the case, when assets are disposed of for more than their undepreciated capital cost, the excess claims will have to be recaptured.

First, manufacturers and processors that acquire new machinery and equipment after Nov. 20, 2018, will immediately be eligible to write-off the full cost in their tax returns for the year that new equipment is put into use (for most capital assets – except class 53):

  • First-year claims will be tripled for purchases between November 20, 2018, and December 32, 2023.
  • Rather than restricting the claim to 50% of the normal Capital Cost Allowance (CCA) claim (half-year rule), the claim will be 150% of the normal CCA claim.
  • For purchases in years 2024 to 2027, the half-year rule will be suspended and where the half-year rule does not apply, the claim will be 125% of the normal claim.
  • For purchase after 2027 the current rules will apply.
  • For class 53 – manufacturing and processing machinery and equipment):
  • The CCA rate will be 100 % for purchases between November 20, 2018, and the end of 2023.
  • For purchases in 2024 and 2025, the rate will be 75%
  • For purchases in 2026 and 2027, the rate will be 55%.
  • For purchases after 2027, the rate will return to 30% subject to the half-year rule.

Second, businesses buying certain kinds of clean energy equipment after Nov. 20, 2018, will also be eligible to fully write off those costs as part of a push to get more businesses investing in clean technology. The same rules for class 53 will apply for purchases between November 20, 2018, and December 31, 2027. After that, the current rules will apply.

Both write-offs will be phased out starting in 2024 and will no longer be available after 2027.

Third, the plan will also triple the amount companies can deduct from their tax returns for capital investments in their first year of use through what will be known as the Accelerated Investment Incentive.

Those measures account for $4.9 billion of what is projected to be a $5.3 billion price tag for the proposals dealing specifically with investment innovation next year, when the government will have to answer to voters over whether it has done enough to keep Canada a competitive place to do business.

What I find interesting, is that the main two industries being targeted are the manufacturing and clean energy. It seems as though the Canadian Government is trying to grow and support an industry that will provide more sustainable jobs and higher quality exports.

What do you think this will mean for the growing Canadian economy? Comment below.