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Accelerated Capital Cost Allowance Changes
The incentive accelerates the amount of capital cost allowance that can be de-ducted from taxable income. The change allows farmers to claim more allow-ance in year one, it reduces how much is left for subsequent years. The total amount of deduction hasn't been increased, you just get to claim deductions sooner.
Until now, you could only claim half of the regular allowance in the year that something was purchased. Now you can claim 100 % of the applicable capital cost allowance in the year of purchase. In addition, the first year of capital cost allowance has been bumped up by 50 %. Net additions to any class will be in-creased by a factor of 50 % for calculating the first-year capital cost allowance. For subsequent years, the allowance deduction returns to normal.
Here.s an example of how it may affect your operation. Let's say you buy a new or used tractor for $50,000. Tractors and other self-propelled equipment are in Class 10 and eligible for a 30 % capital cost allowance. If you purchased the tractor before Nov. 20, the capital cost allowance in the first year is 15 % or $7,500. This is half of the 30 % allowance in the first year of purchase. If the tractor is bought after Nov. 20, the half-year rule is suspended, plus the amount is bumped up by a factor of 1.5 times. Rather than a capital cost allowance of 15 %, you can deduct 45 %, which is 22,500. How does this affect your tax bill? If you're running an incorporated farm with a federal tax rate of 12 %, the $22,500 capital cost allowance reduces your tax bill by $2,700. The same trac-tor purchased before Nov. 20 would generate a reduction in taxes of only $900.