In response to the corporate tax cuts south of the border, Canada introduced the Accelerated Investment Incentive (AII) in November 2018 to encourage capital investments and growth in a number of industries. Specifically, the Canadian government wants companies to invest in construction and mining equipment in 2019 and subsequent years to fuel economic growth.
So how does the accelerated investment incentive work? Simply put it allows businesses to claim larger tax deductions in the same year they purchase a qualified asset, such as a vehicle, excavator, wheel loader, etc.
For example, prior to November 2018, if you purchased a piece of equipment for $100,000, you could make a tax deduction of $10,000 in the 2018 tax year, with the remaining $90,000 deducted in subsequent years according to the Capital Cost Allowance (CCA) tax depreciation rules. The idea is to write off the cost of an asset over its estimated useful life. This deduction was previously restricted to half the amount of the purchase cost multiplied by the CCA rate (in this example, $100,000 x 50% x 20% = $10,000).
Under the new proposed rules, construction and mining companies will be able to claim a much larger tax deduction for assets purchased after November 20th, 2018 (if it is available for use in the year you are claiming the deduction). The new rules allow a 3x increase in the deduction amount in the example shown above. This means you could claim a $30,000 deduction in the first year of purchase, instead of only $10,000. Please note this rule only allows you to make a larger upfront deduction, it does not allow you to increase the total amount deducted in subsequent years.
The government of Canada is also giving increased initial deductions to select assets such as manufacturing and processing equipment, with a focus on clean energy equipment. Qualified assets would allow business owners to deduct 100% of the price in the year of purchase.
Companies in the forestry, mining and construction sectors know the value of purchasing quality equipment that increases productivity and minimizes costs. If you are looking to invest in construction and mining equipment in 2019, we encourage you to contact the heavy machinery experts at Handlers Equipment!
Disclaimer – this article should not be considered tax advice, for tax advice specific to your situation please speak with an accountant, you can also read more about the Fall Economic Statement by clicking here.