Windsor, Ontario
14 May 2015
In light of ongoing modest global growth and economic uncertainty, and the importance of capital investment in spurring productivity and growth, the Government of Canada is committed to providing concrete, long-term support to enable Canadian manufacturers to plan the capital investments that are needed to compete internationally and recover the start-up costs of those investments more rapidly.
To this end, on May 14, 2015, Prime Minister Stephen Harper highlighted that Economic Action Plan 2015 proposes to help Canadian companies invest in manufacturing and processing machinery and equipment by providing a ten-year tax incentive in the form of an accelerated capital cost allowance (CCA).
For income tax purposes, unlike current expenditures such as wages, the cost of capital property generally cannot be fully deducted in the year the property is acquired. Rather, a portion of the capital cost of a depreciable property is deductible as CCA each year, with the CCA rate for each type of property set out in the Income Tax Regulations. CCA rates are typically set so that the cost of depreciable property is recognized over the useful life of the property. Accelerated CCA treatment is sometimes provided as an exception to this general practice, allowing taxpayers to more quickly recover the cost of their capital investment.
An accelerated CCA for manufacturing was introduced in 2007 to encourage investment in machinery and equipment used in manufacturing and processing. This measure, which provided a 50 per cent straight-line depreciation rate, will expire at the end of 2015.
From 2007 to 2014, more than 28,000 businesses in the manufacturing sector, which employs Canadians in all regions of the country, took advantage of the incentive.
Economic Action Plan 2015 proposes to provide manufacturers with a new accelerated CCA at a rate of 50 per cent on a declining-balance basis for eligible assets acquired after 2015 and before 2026. This is a substantially faster write-off than the standard 30 per cent declining-balance rate, allowing businesses to defer taxes and to recover the cost of capital investments more quickly.
The new measure will help businesses to invest in the machinery and equipment they need in order to increase productivity and generate jobs and economic growth. Providing the new incentive for this extended period of time will help to provide businesses with planning certainty for larger projects where the investment may not be completed until several years after the investment decision is made and for longer-term investments with multiple phases.
For example, the deferral of tax associated with this new accelerated CCA is expected to reduce federal taxes for manufacturers by $1.1 billion over the period from 2016-2017 to 2019-2020.
This initiative is one of many steps that the Government has taken since 2006 to create an environment that enables Canadian manufacturers to prosper. These have included:
- Introducing the Red Tape Reduction Action Plan and the Venture Capital Action Plan;
- Reducing the corporate tax rate to 15 per cent as of 2012 from 22.12 per cent in 2007, making Canada’s overall tax rate on new business investment the lowest in the G-7;
- Eliminating the federal capital tax, and helping secure the elimination of provincial general capital taxes through a financial incentive;
- Supporting business innovation and world-class research;
- Training a highly-skilled workforce;
- Improving access to financing; and,
- Promoting international trade, including through the conclusion of free trade negotiations with both the European Union and the Republic of Korea.
Further examples include the creation of the Automotive Supplier Innovation Program through Economic Action Plan 2015, the launch of the Defence Procurement Strategy, and advancing the replacement of the Champlain Bridge in Montreal as well as the construction of the Detroit River International Crossing between Windsor, Ontario, and Detroit, Michigan, to secure safe and efficient access to Canada’s busiest crossings, critical for the movement of goods to markets.
