How the federal economic update can help your bottom line.
The federal fall economic update, which outlines the Government’s plan to grow the economy for everyday Canadians and businesses, was presented on November 21, 2018. The changes included in the update offer a handful of improvements for Canadian business owners that will positively impact their bottom line. This support for businesses of all sizes also means changes to keep in mind when it comes time to file their tax refund.
Here are the three changes that will have the biggest impact for Canadian business owners:
Big changes announced for the Capital Cost Allowance (CCA).
The federal Fall Economic Statement included a temporary change to the half-year rule for claiming CCA and it’s a big win for business owners. First off, if you’re not familiar with the CCA, here’s what it is: the Canada Revenue Agency (CRA) understands that office equipment such as furniture, computers, a photocopier – you get the idea – wears out or becomes obsolete over time (remember fax machines?), so they allow business owners to deduct the cost of these items over a period of several years.
The change with the CCA takes effect for purchases of equipment made on or after November 21, 2018 and will affect the amount that may be claimed on the 2018 tax return. The new measure, referred to as the Accelerated Investment Incentive (AII), allows for 150% of the normal CCA rate to be claimed (the amount of CCA that could be claimed in the year of purchase was previously 50%) – meaning the amount that can be claimed has tripled. Hear that? That’s the sound of business owners across Canada high-fiving. If you’re in the market for a new computer or office equipment, this might be a sign to jump on it before the end of the year.
Newly-purchased manufacturing and processing equipment is now immediately deductible.
Machinery and equipment used in manufacturing and processing is now deductible for tax purposes the year it was purchased instead of over several years. Previously, the deduction was generally limited to 25% in the first year and then 50% annually until the maximum amount available was claimed. Which means that Canadian business owners can now get money back in their pockets for these purchases much sooner.
This measure will apply to assets purchased on or after November 21, 2018 that will be used in Canada for manufacturing or processing items you’ll be selling or leasing. If you’re unsure whether your purchase qualifies you can learn more about that on the Canada Revenue website here. Sounds like it might be the time to treat yourself just in time for the holidays.
Writing off clean energy equipment has never been quicker.
Much like manufacturing and processing equipment, the full cost of certain clean energy equipment purchased on or after November 21, 2018 is also now deductible for tax purposes the same year it was purchased. Previously, the deduction was generally limited to 15% or 25% (depending on the type of property) in the first year, and 30% or 50% each year afterwards until the total amount available was claimed. The goal of this change is to help achieve Canada’s climate goals, which benefits everyone, as well as help to make Canada more competitive globally in this area. This new change means you can feel good about helping the environment while recovering some expenses sooner rather than later.
All of the above changes are temporary measures that take effect immediately but will be phased out between 2024 and 2028.
If you’ve got questions about how these changes may impact your tax refund, find an office near you, or get an expert review with our tax software.