Increasing the depreciation tax break on farm equipment would make it easier for producers to get their hands on the latest, most efficient agricultural tools on the market, says John Schmeiser, executive vice-president of the Canada West Equipment Dealers Association.
Current tax rules under the Capital Cost Allowance (CCA) allow farmers to claim 30 percent of the cost of Class 10 heavy machinery each year. However, in the first year the claim can be applied on only 50 percent of the equipment’s cost.
Increasing the rate, or dropping the 50 percent restriction for farm equipment in the first year, would reflect the true pace of depreciation for modern farm equipment, said Schmeiser.
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“We are asking for a very minor, moderate and what we believe is a very reasonable increase in the rate from 30 percent to 40 percent, which gives it an effective change from 15 to 20 percent in that first year,” he added.
Last year, federal finance minister Jim Flaherty set in motion a process for reviewing the CCA schedules that is due to be completed by Sept. 30. Already, the dealers’ lobby has won support from three of the House of Commons standing committees: agriculture; industry and finance.
“I’m sure that it has been at least 15 years since the CCA rate on agricultural equipment has been even looked at,” he said.
“There are a lot of reasons why this needs to be addressed. We are thankful that the minister has at the very least opened up the door and put this question on the table.”
As farms become larger, tractors and other machinery need to cover more acres. That means they wear out faster and need to be replaced sooner, said Schmeiser. Other benefits to society overall include the fact that the new machines have better pollution controls and offer producers improved cost efficiency. He urged more producer groups to join the effort, because the greatest beneficiary would be farmers.
“A number of years ago, we might have kept a large four wheel drive tractor for 10 years,” he said. “Farmers are turning their inventory more quickly. The effective life of the machines is different, too.”
Emilia Kotris, communications manager for the Canada Revenue Agency, said the tax depreciation rate for Class 10 equipment, which includes automobiles and most heavy farm equipment, is among the highest of all categories. In comparison, up to 45 percent of the cost of computer equipment bought after 2005 can be claimed as depreciation.
On a $300,000 combine, she said the depreciation writedown translates into a tax break of $45,000, because only 50 percent of the cost can be claimed in the first year.
In subsequent years, a producer could claim the full 30 percent of $255,000 – the depreciated value in the second year – and so on until the equipment is sold. By Year 6, the depreciable value of the equipment would be $35,000, or a bit more than 10 percent of the original purchase price.
The North American Equipment Dealers Association is also pushing for changes in the United States’ tax code. North Dakota senator Kent Conrad has sponsored legislation that would reduce the Internal Revenue Service’s depreciation schedule to five years from seven.
In a news release, Conrad called the current seven-year depreciation period an injustice, because the average lifespan of tractors and combines is about five years.
