Reducing Taxes for Manufacturers | FBC, Canada's Farm & Small Business Tax Specialist

Reducing Taxes for Manufacturers

Recovery from the global recession hasn't been easy for Canadian manufacturers, but the government is offering help in the form of tax relief.

Economic Action Plan 2013 was designed to help Canada overcome obstacles to economic recovery. One facet of the strategy was the temporary accelerated capital cost allowance (CCA) for purchases of new machinery or equipment in the manufacturing and processing sector.

Manufacturing and processing equipment (Class 29) had a 25% increase in the CCA rate that was scheduled to end after 2013. This was extended for eligible assets acquired in 2014 and 2015.

The half-year rule does apply so only half the value of the asset can be claimed in the first year of purchase. A full write-off may be claimed over 3 taxation years.

Growth hasn't been consistent for manufacturing and processing businesses. Following gains in manufacturing shipments during June and July, sales dropped 3.3% to $52.05 billion, Statistics Canada reported. The projected drop was 2%.

In July, manufacturing sales experienced a gain of 2.5%, reaching a record level of $53.81 billion. August's drop represented the largest since Canada was in the throes of the global recession in May 2009.

Despite the drop in manufacturing sales, Canadian Finance Minister Joe Oliver said this week that he has confidence in the overall economic outlook for the nation.

"The manufacturing sector is growing, though the pace of growth perhaps is a bit lackluster," David Madani, chief economist with Capital Economics, told The Montreal Gazette. "My expectation is that manufacturing sales growth will be fairly positive. There will be growth supported by the U.S. economy, but the pace will be fairly unspectacular."

In order to combat stagnancy in the manufacturing sector, the Canadian government has extended the CCA in hopes that high returns on investment will buoy factories during the next two years.

The CCA determines how much businesses can deduct from their taxes each year using the cost of capital assets.

This will prolong taxation in order to provide business owners with a faster and more significant ROI. In addition, this will help business keep their equipment and machinery up-to-date.

The Manufacturing and Processing Deduction

In addition to the CCA, there is the Manufacturing and Processing Profits Deduction to get some extra tax relief.

The manufacturing and processing profits deduction reduces the effective rate of corporate tax on Canadian manufacturing and processing profits by 13%.

For more information on how your manufacturing business can lower its annual rate, speak with an FBC tax expert.

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