Tax Relief for New Manufacturing Machinery and Equipment

In recognition of the ongoing uncertainty in the global economy, Economic Action Plan 2013 announces an extension of the temporary accelerated capital cost allowance 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 over the coming years and help create jobs in a sector that was particularly hard hit by the global recession.

Currently scheduled to expire at the end of 2013, the 50 per cent 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-per-cent 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 per cent 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.

This change is expected to increase support for the manufacturing and processing sector by $140 million in 2014-15 and a total of $1.4 billion over the 2014-15 to 2017-18 period.