Tax change: Depreciable purchases written-off faster.

[SASKFARMER3]

This past fall the federal government introduced the Accelerated Investment Incentive, giving Canadian businesses the ability to write off capital expenditures faster. Encased in its 2018 Fall Economic Statement, this incentive allows farmers and other businesses more depreciation in the year an asset is purchased … a lot more.

Wow now, wouldn't it be nice if the shit was priced at the half million and down club?

Got a quote and the starting number before deductions on a quad track had a $900.000.00.

Am I missing something here?

Oh well, it's a plus 77 today so have a great day.

Looks like the snow event is north of 16 highway. Ah, they through the dart wrong again.

[SASKFARMER3]

Different incentives apply for three categories of capital assets, Manufacturing and Processing investments (M&P), Clean Energy investments and other capital investments or non-M&P.

The incentives for M&P and non-M&P equipment purchases differ and have quite detailed requirements so ask your accountant about them before you pour concrete or go buy some shiny paint.

For M&P equipment bought after November 20, 2018 and available for use before 2024, the tax deduction available in the year of purchase will be 100 per cent of the cost. The write-off in the year of purchase is 75 per cent of the cost for the years 2024 and 2025, and 55 per cent of the cost for years of 2026 and 2027.

[SASKFARMER3]

For most farmers, most equipment purchases will be non-M&P since under the federal income tax rules, farms are not considered manufacturing or processing. The incentive for these purchases is three times the normal tax deduction through additional CCA in the year of acquisition, when available.
n other words, if you buy equipment available to use after November 20, 2018 and before the year 2024 you can write off three times the normal tax deduction. Property acquired and available for use after 2023 and before 2028 will be eligible for enhanced CCA of only two times the normal previous tax deduction.

For example, if you purchased and took possession of an airseeder for $100,000 under the accelerated investment incentive, you would be able to write-off $30,000 in the year of purchase. Before the new incentive, your normal tax write-off in the year of purchase would be $10,000. You’d get this enhanced write-off if you bought it before the year 2024, but if you purchased the same airseeder in the next three years, the write off in the year of purchase would be less, only $20,000.

The Fall Economic Statement included the following example. If a grain farm renews its entire fleet of aging tractors and combine harvesters, and spends $2 million, the farm will be able to deduct $900,000 for tax purposes in the first year the equipment is used. Previously, the farm would have only had $300,000 in CCA without the Accelerated Investment Incentive. For the farm, the net result would be about $160,000 in federal-provincial tax savings.

The farmer will benefit from the Accelerated Investment Incentive plus the increased efficiency and potentially the lower operating costs from the technological advances incorporated into the new equipment. However, this might also mean taking on too much machinery debt at the wrong time.

It’s always smart to plan your capital asset acquisitions and how it will impact your farm’s finances. This new incentive makes it an excellent time to review how your asset replacement strategy impacts on your farm’s taxes.

Before you buy or build, talk with your accountant and lenders about your farm’s working capital and debt/equity ratio.

[MBgrower]

Lets not be naive, equipment manufactures will increase the price of new farm machinery as a result of these tax changes because they know farmers will be lining up out the door to take advantage of these tax changes.

[walterm]

Lets not be naive, equipment manufactures will increase the price of new farm machinery as a result of these tax changes because they know farmers will be lining up out the door to take advantage of these tax changes.

Yep will be a sales promotion for them. And farmers will fall for it. Just like a rebate program, you over pay us and we will give you some of it back.

[bucket]

The last time a canadian government did something like this guys would tell the dealer to inflate the price of the new equipment to get the tax credit.....the farmer was only paying the difference so it didn't matter...the used stuff followed in price...

Thats not happening this time....


But dealers and manufacturers will gladly inflate the price more....and leave the trade in at RBA pricing....

[furrowtickler]

Not sure if it even matters anymore . Any new equipment is so far out of reach it’s unaffordable anyway .

[farmaholic]

Who the **** buys equipment for a tax write off these days? If you do you better change the farm structure and make those purchases based on need and not tax savings.

Anyone who thinks the "equipmemt flippers" are doing it for tax reasons better think again. It more likely has everything to do with financing and warranty and lease payments...

[Rareearth]

So only new equipment.
If any equipment, you could accelerate the dep. rate, then then affordability to modernize and accelerate efficiencies would also improve. Implementing across all ages would create a balanced market place. The current plan is short sighted, and creates imbalance and even unfair market place from manufacturers to dealers to the farmers along with every other business tied to Ag

[AlbertaFarmer5]

I thought everyone leased new equipment? Will this be the end of leasing?

Does 30% in year one really represent actual depreciation, or will some end up having a capital gain when they sell the used equipment since it depreciated on paper faster than in reality?

[LEP]

I thought everyone leased new equipment? Will this be the end of leasing?

Does 30% in year one really represent actual depreciation, or will some end up having a capital gain when they sell the used equipment since it depreciated on paper faster than in reality?

Not a capital gain , but a recapture of depreciation. Which in my opinion should also be managed in a large operation that is reaching the last 5 years. You may have saved some tax along the way only to pay it back in a very big lump after an auction sale. Kinda like buying rrsps and cashing them all in the day you sell out.

[tubs]

I talked to a leasing firm and they said that the advantage of leasing is gone taxwise. Farmers should just buy stuff the need paying for stuff is going to be difficult in the next few years.

[Quadtrack]

This is a bullshit smoke and mirrors deal from the idiot liberals.
How does this incentivize investment which is what they say their intention is? It’s very different from a tax credit.
The depreciation was available before, and increasing the rate only gives the small time value of money benefit on the rate difference. In very short order, item is depreciated down and if sold or traded, recapture CCA will bring the rate back in line with true value anyway.
Dropping the Corp tax rate from 10.5 to 9 is a benefit but can be ‘blamed’ on Harper as that is who put it in motion.
As Farma says nobody is buying equipment for tax purposes, and that includes non farm business as well.

[Richard5]

As I have always debated, there is no real benefit in leasing as you get the deduction for a purchase in time.

As others have posted, with the tax rates as low as they are, there is no big incentive to purchasing equipment for tax purposes. With an 11% tax rate, the focus has to be (and always was in my farm) that the purchase make your farm more money. Those that but for the "show" will lose.

In my opinion, this was done to get rid of leasing companies were doing by drawing up agreements that make the deduction grossly faster than the capital cost system.

I smile widely if the end of leasing companies is near as the concept of leasing was the biggest scam to create more sales.

As far as the comment to reducing the corporate tax rate, everytime the government lowers the corporate rate CRA wins even more as the total tax paid once dividends are paid out is higher on old earnings. Ask this question to your accountant and see if he understands. Give him/her a kick in the ass if they don't

[farmaholic]

If you ain't buying you ain't makin money !

What Farma you ain't claiming that new combine on your CCA ??

You don't fool me ! 👍🚜😀

Ya I'll claim the CCA tax deduction but I won't be using any accelerated method. I don't "need" the tax deduction that bad. The combine we traded was 9 years old but not houred-up to the max. We traded before we lost too much more value in the old one, so it was done for the right reasons not for show or the "lease" was up on the "old" one.

R5, do you think this new depreciation schedule will affect the leasing business of CNH or JD? The guys using those leases probably have little to no equity in the iron they're using. They are paying to use it...like everyone else, whether you make machinery payments toward ownership and incur depreciation and pay interest , pay cash and have "real" depreciation costs...there is always a "cost".

I could see the independant lease companies suffering.

The real smoke and mirrors is in the MSRP of new machinery....I get amused when people quote new machinery prices. Like $F3 said...quote $900K for a quadtrack then shave 20% right off the top without any negotiations...do they really think we're that stupid? Then deduct the value of a good trade and some more arm twisting and suddenly the $900K looks even more absurd. It's all a joke!

My wheat's full retail value is $12/bu and Canola is $18/bu....but I take less.