Tax change: Depreciable purchases written-off faster.

[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.

[Richard5]

Farma, its just my thoughts but I would agree with your comments about companies that write up true leases. Vehicles, JD, CNH would be examples where there is a buyout makes sense. In those "true leases", if you calculate it out, you always get more deduction with a purchase.

I also agree with your thoughts on managing the CCA but will throw this at you to ponder. Use the new CCA class but manage your income with the optional inventory adjustment. Even though you have higher CCA, you can still plan forward with the inventory.

For those that are retiring 3-5 years down the road, don't take capital cost, save it for the eventual sale of the equipment making recapture less. Capital cost is a choice, and is something you can do. If your accountant has his head down and only worried about today then you have to train him/her to adjust the CCA claim.