posted on 06.17.14

The financial crisis and economic upheaval in 2007 and 2008 led to economic stimulus measures in countries around the world. In Canada, accelerated capital cost allowance (ACCA) was introduced in 2007 to allow for a faster write-off and cost recovery for manufacturing equipment. In the United States, the Economic Stimulus Act was introduced in February 2008 with generous Section 179 deductions (primarily for small businesses) and special depreciation allowances, commonly referred to as bonus depreciation allowance.

These were introduced to recover the cost of capital assets more quickly, with larger write-offs in the early years. While bonus depreciation in the United States applies to most classes of property, Accelerated Capital Cost Allowance (ACCA) has a very limited application — for manufacturing equipment (since 2007) and clean energy equipment (since 2010). Furthermore, bonus depreciation in the U.S. allows for a more significant write-off in the year of purchase than ACCA, as both bonus depreciation and regular MACRS depreciation are computed in the year of purchase, and the half-year convention is not applicable to bonus depreciation while the half-year rule is applicable to ACCA.

Bonus depreciation in the United States has been extended to December 31, 2013, while ACCA in Canada has recently been extended to December 31, 2015. This paper reviews and compares the Canadian and U.S. systems of tax depreciation (capital allowance) for Machinery and Equipment, both before and after the introduction of ACCA in Canada and special deduction allowances in the United States. It uses examples of assets that are comparable and provide some sample calculations of deductions.

It concludes that capital allowances and the tax treatment for capital assets provide for faster write-offs in the United States, putting Canadian manufacturers at a disadvantage with manufacturers in the United States.

To view this 20-page report, log in to the MTI Members Only Area and click on Capital Expenditure Report in the featured resources box.