How will changes in depreciation rules impact you?
The clock is ticking on the accelerated Capital Cost Allowance program.
If buying a major capital asset is in your future business plans, consider making your purchase sooner rather than later. The clock is ticking on the Government of Canada’s time-limited accelerated Capital Cost Allowance program.
Producers only have until December 31, 2023 to take full advantage of provisions that allow them to triple the amount of a capital asset expenditure that can be depreciated in the year of purchase. The program is scheduled to be slowly phased out between 2024 and 2027.
Canadian businesses have long been accustomed to using the Capital Cost Allowance (CCA) program to write off the cost of investing in capital assets for their business at varying rates depending on the class of the expenditure, says Grant Griffith with MNP in Winnipeg, Man. For example, if a farmer traded in a $100,000 tractor to buy a $400,000 tractor, they could depreciate the $300,000 net difference over time.
“Under the old CCA rules you could deduct 30% of the net value of the tractor, on a declining value basis, over time except on the year you bought it,” Griffith says. “The first year, the half-year rule was applied, so you’re only able to claim 15% depreciation. Under the new rules, in effect since November 2018, farmers can now claim 45% depreciation that first year. Then, under both old and new rules, depreciation would revert to 30% of the declining value basis for subsequent years.”
The accelerated CCA rules introduce another calculation for producers to consider when they decide whether they should lease or buy new capital assets, Griffith adds. Every operation will need to look closely to see which pathway will best suit their business’s needs.
The new rules also allow for 100% of the capital expenditures for manufacturing and processing equipment as well as green energy investments to be written off in the year of purchase, says Kathy Byvelds with Baker Tilly Canada in Winchester, Ont. Vegetable producers could write off 100% of a new line of processing equipment. Dairy or hog producers could deduct 100% of a methane digester to generate electricity from their manure the first year as long as greater than 50% of the electricity generated is consumed by the farm business. The changes also keep the business tax structure in Canada in line with changes in the United States.
From an AgriSuccess article by Lorne McClinton.