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Immediate expensing measure in federal budget expected to make farm capital purchases more attractive

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Whereas a lot of the eye across the federal budget launch on Monday was targeted on the billions of {dollars} in new spending and applications, the budget additionally features a vital measure that may make it more attractive for included farms to buy sure sorts of capital, together with tractors, vans, and different farm equipment.

The budget, if accredited by Parliament, would permit rapid expensing of up to $1.5 million of “eligible investments” annually by Canadian-controlled personal firms. The measure would apply from April 19, 2021 till the top of 2023.

“Essentially, a farming business, each year, will have a $1.5 million threshold where they can go purchase capital assets up to that amount. Normally, when you purchase assets you have take deductions and depreciation over time. That $1.5 million can now be fully expensed in the first year,” explains Ryan Kehrig, tax accomplice with MNP primarily based in Saskatoon, discussing the tax implications of the Liberal budget in the interview beneath.

“It’s definitely going to be an incentive for farmers to upgrade their capital equipment if they feel they can,” he says.

The rapid expensing measure solely applies to sure Capital Price Allowance (CCA) lessons. Lessons 1 to 6, 14.1, 17, 47, 49 and 51 are all excluded, that means class 1 buildings, farmland, quota, and grain bins aren’t eligible, notes Kehrig.

From a tax perspective, farmers shouldn’t be alarmed, however ought to concentrate to indicators coming from Ottawa round capping the quantity of curiosity that may be deducted as an expense annually, says Kehrig.

The budget proposes that curiosity bills claimed by sure companies be restricted to 40 per cent of their earnings in 2023 and 30 per cent thereafter.

“Long story short, highly-leveraged, low-income businesses, such as those in the ag sector tend to be, may see a cap or a ceiling on the amount of interest they can deduct. This interest will carry forward to future years, but unless the dynamics of the industry change, you may be paying interest expense but not realizing the tax benefit from it,” explains Kehrig.

Draft laws relating to these limits on curiosity deductions is expected this summer time, which might be adopted by the standard session and parliamentary approval course of. The budget refers to the measure in the context of multinational corporations utilizing “excessive” deductions of curiosity to scale back the taxes they pay in Canada, so Kehrig says the hope is the federal government will make clear the proposal so it doesn’t have an effect on farm companies.

The budget additionally guarantees rebates of up to $100 million on carbon taxes paid for grain drying in the provinces the place the federal carbon tax backstop is in impact — Alberta, Saskatchewan, Manitoba, and Ontario. “It’s a little vague as to how these rebates are going to be applied. Is it going to be equal across the board? Or is there going to be some kind of receipt mechanism? Or just based on acres? My preference would probably be to have those activities exempted in the first place,” notes Kehrig.

For more on the tax implications of the 2021 federal budget, pay attention to Ryan Kehrig’s total chat with Shaun Haney:

Associated: Local weather and COVID-relief applications headline agriculture spending in federal budget

 

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