Summary

A new program from the federal government allows in many cases for 100% of a machine used for manufacturing to be depreciated in the first year.

The T2145 Election in respect of the leasing of property form can be found here.  https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2145/t2145-11e.pdf

It is a simple one page form to be completed by the purchaser and the equipment dealer to submit the CRA.

As it is a joint election, the bank/finance/lease company also signs the document.  The election in respect to the leased property deems the lease not to be a lease and that the actual user is deemed to have acquired the leased property/equipment at its fair market value by having financed the purchase through a loan.  The user of the equipment  claims the depreciation (and if it is manufacturing equipment you have leased, you will get to claim the accelerated depreciation (100%) on your  corporate tax return).  As Modern Tool sells mainly manufacturing equipment, this will apply to every customer we have.

The form defines what would qualify, so the finance company/bank doesn’t have to do any research:

• Lease if for more than one year
• You are dealing at arms length with the bank
• The leased property would be depreciable property if it had been acquired directly; and
• The lease is in respect of tangible property (equipment).

In the recent federal budget it seems that any capital equipment used in business may now qualify for the accelerated depreciation of 100% of the purchase price of the equipment.

The nice thing about having a joint agreement, is that the customer gets the lower payment of a lease, but can depreciate the equipment 100%.  So if on the last day of a customer’s  fiscal year, they enter into a lease, they might only have to make one lease payment, but can for tax purposes deduct the entire value of the equipment as a depreciation expense.

If you’re on the fence about when you may be able to afford a piece of equipment, the tax incentive may help you decide !