Federal budget offers tax write-off for Canadian manufacturers

Budget 2007, which was tabled by Finance Minister Jim Flaherty on March 19, includes a measure that could offer a much-needed tax break for Canadian manufacturers.

The federal budget includes plans for an accelerated capital cost allowance (CCA), which would allow manufacturers to completely write off their new investments in manufacturing equipment over a two-year period. The measure would be implemented until the end of 2008, and would result in a reported $1.3 billion in tax savings for manufacturers over the next three years.

“[The accelerated CCA system] will help Canadian businesses invest in new technologies and better compete on the world stage,” said Flaherty in his speech to the House of Commons today. “Canada’s job creators need modern technology to be more efficient, and buildings that allow them to grow.”

Flaherty also noted that the traditional CCA system allows businesses to write off equipment investments over approximately seven years. If approved, the new system would encourage investments and help create jobs by proxy.

The manufacturing industries have been advocating the implementation of an accelerated CCA system in the lead up to today’s announcement. The Canadian Plastics Industry Association (CPIA), which is one of more than 20 industry associations represented by the Canadian Manufacturing Coalition, jointly lobbied for the inclusion of accelerated CCA in the federal budget.

In a statement posted on the CPIA’s website last week, president and CEO Serge Lavoie said the association would come out “strongly in opposition” of the budget if the accelerated CCA system was not included.

A report on the challenges facing the manufacturing sector in Canada was presented by the Standing Committee on Industry, Science and Technology last month. Accelerated CCA was one of 22 recommendations made by the committee.

“This measure is vital to the prosperity of the industry,” said Canadian Manufacturers & Exporters (CME) president and CEO Perrin Beatty. “Accelerating the Capital Cost Allowance will help manufacturers cope with a rising dollar, boost cash flow, and allow [them to] make the investments they need to remain competitive.”

Although the new budget also addressed several other manufacturing industry concerns, the measures did not completely fulfill the recommendations made by the Standing Committee. For instance, the committee had suggested the two-year write-off for a period of five years, with the option to renew for additional five-year periods upon review.

“The announcement in the budget falls short of the five-year program recommended in that report and by most manufacturing associations, but it’s a recognition that manufacturing needs a boost to allow itself to improve productivity and competitiveness during difficult times,” noted CPIA’s Lavoie in an official statement on the association’s website.

The new budget also did not seem to heed the Standing Committee’s recommendation that the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program be made more relevant and accessible.

Canadian Plastics will continue to explore the impact of Budget 2007 on the plastic manufacturing sector. Please check our website for updates.