Looking Forward to the 2018 Federal Fall Economic Update

Looking Forward to the 2018 Federal Fall Economic Update

There have been mumblings that Bill Morneau’s 2018 fall economic update will have measures to incentivize capital investments in Canada. One of those measures is allowing businesses to write off their capital assets quicker (even immediately expensing them).

Since the motive behind this anticipated change is to stay competitive with our neighbors to the south, let’s have a look at what their depreciation rules look like. This may give us a glimpse into what Mr. Morneau will table later today.

The U.S. tax code temporarily allows the following:

Bonus Depreciation: Temporary 100 percent expensing for certain business assets           

  • 100% expensing for qualified assets acquired and placed in service after September 27, 2017 and before January 1, 2023.
  • After, 2022, the 100% allowance decreases by 20% per year and expires Jan. 1, 2027.
  • Machinery, equipment, computers, appliances and furniture generally qualify.
  • Real estate does not generally qualify.
  • There is no dollar limit.

Section 179 Deduction:

  • If the bonus depreciation is not available, then taxpayers may claim a deduction under section 179. This reduces the depreciable cost of property.
  • Qualified assets – both new and used – generally consist of machinery, equipment, furniture, off-the-shelf computer software and certain improvements to nonresidential real property (i.e., HVAC, roofs, fire protection, and security systems). Therefore, most depreciable business assets qualify.
  • Taxpayers can deduct up to $1,000,000 of qualified assets placed in service; if the qualified assets placed in service exceeds $2.5 million, the write-off is phased out to the extent that the cost of qualified assets place in service during the year exceeds $2.5 million. For example, if you have $3.5 million of qualified assets phased in, the 100% write-off is fully phased out. These amounts are adjusted for inflation
  • Taxpayers must make an election to get the immediate expense treatment.
  • Real estate does not generally qualify.
  • Qualified assets cannot be used predominantly outside the U.S.
  • Taxpayers cannot generally increase or create losses with the 100% write-off; however, taxpayers can carryforward disallowed deductions.
  • There are rules to prevent taxpayers from setting up multiple companies to multiply access to the $1 million-dollar limit; in essence, members of a controlled group share the investment and phase-out dollar limits. Also, qualified property cannot be acquired from related persons.

How Does This Compare with Canada?

  • General business equipment gets amortized at 20%.
  • Machinery and equipment, used in Canada to manufacture and process goods for sale or lease gets amortized at 30%.
  • Eligible machinery and equipment used in Canada to manufacture and process goods for sale or lease, acquired after March 18, 2007 and before 2016, qualifies for a 50% straight line deduction (with the half-year rule).

Canada’s depreciation rules are not on par with the U.S.’s. We will see how far Canada takes it later today.

Share on twitter
Share on linkedin
Share on facebook
Share on google
Share on email

Subscribe to our Newsletter

Stay up to date with daily tax developments.

Leave a Comment

Scroll to Top