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Struggling manufacturers seen gaining some tax relief
Steven ChaseThe Globe and Mail.  Toronto, Ont.:Mar 2, 2007.  p. B.3 
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Struggling manufacturers seen gaining some tax relief
Steven ChaseThe Globe and Mail.  Toronto, Ont.:Mar 2, 2007.  p. B.3 
Author(s): Steven Chase
Document types: News
Dateline: Ottawa ONT
Section: Report on Business: Canadian
Publication title: The Globe and Mail. Toronto, Ont.: Mar 2, 2007.  pg. B.3
Source type: Newspaper
ISSN: 03190714
ProQuest document ID: 1225656851
Text Word Count 660
Document URL: http://proquest.umi.com/pqdweb?did=1225656851&Fmt=3&clientId=26918&RQT=309&VName=PQD
Abstract (Document Summary)

It said Canada's rates for investment writeoffs -- called capital-cost allowance rates -- are below the norm in the group. "Canada's CCA regime is less generous than the average, largely due to a relatively low CCA rate for manufacturing plants."

Full Text (660   words)
2007 CTVglobemedia Publishing Inc. All Rights Reserved.

Ottawa says writeoff rate should improve

The federal Finance Department yesterday suggested in a report that the investment writeoff rate for Canadian manufacturing plants should be improved: a move being taken as a signal that this relief is coming in the March 19 budget.

But Canadian manufacturers say they're going to want more.

Ottawa's report on the tax competitiveness of the struggling manufacturing sector -- released only weeks before the budget -- says the speed at which manufacturers are allowed to write off their investment in plants is below the average of peer economies.

It's being interpreted as a confirmation Finance Minister Jim Flaherty will act to boost the depreciation rates for manufacturers, at least for their plant structures.

The Finance Department report compares Canada's marginal effective tax rate (METR) on investments with other countries: the amount of tax paid on income earned by investing one more dollar of capital. The premise is that the lower the overall rate is, the more attractive a nation is for global investment.

The Department compares Canada with 16 other "smaller developed economies" because of their similarities and the fact some compete with this country for global investment.

It said Canada's rates for investment writeoffs -- called capital-cost allowance rates -- are below the norm in the group. "Canada's CCA regime is less generous than the average, largely due to a relatively low CCA rate for manufacturing plants."

It said upgrading the investment writeoff rate for manufacturing plants to better reflect their economic life cycle would help improve Canada's marginal effective tax rate (METR) standing compared with other countries.

"Increasing the CCA rate on manufacturing plants to align it with economic depreciation would trim approximately four percentage points from the Canadian METR."

Finance Department watchers said they expect action on this.

"They should and I think they will," said Dale Orr, chief economist at Global Insight (Canada).

Added Don Drummond, chief economist for Toronto Dominion Bank: "Take it as a given that the budget will increase the . . . rates for plants in the manufacturing sector."

Finance's own work shows that depreciation on manufacturing plants is not fast enough to match the economic life of the asset. "In other words, the plant wears out faster than you can write it of against your taxes," Mr. Drummond said.

Manufacturers, who met with Finance Minister Jim Flaherty last week to plead for relief, say plant writeoff rate improvements would be nice, but they want more.

They are asking Ottawa to offer them what amounts to a subsidy when it comes to depreciation rates for machinery and equipment.

Right now, they say, it takes six years to write down 85 per cent of such assets and they want to accelerate the period to two years -- faster then even the economic depreciation rates of these goods.

"Manufacturers are asking for a two-year writeoff for equipment not only to make Canada's tax system more competitive on a global scale but to accelerate capital replacement and encourage more investment in productivity enhancing technologies," said Jay Myers, chief economist at the Canadian Manufacturers & Exporters.

Economists say accelerating depreciation rates for manufacturing plants is not that expensive compared with pricier moves such as corporate income tax cuts, typically costing hundreds of millions of dollars rather than billions.

Mr. Flaherty promised measures to boost economic competitiveness in the budget and has singled out improving Canada's marginal effective tax rate as a key target.

"We must establish a meaningful, marginal effective tax rate advantage . . . one that goes beyond the statutory tax rate itself and takes the overall impact of the business tax system on investment decisions into account," the finance minister said last October.

Mr. Orr said he expects Mr. Flaherty to be eager to offer up as many low-cost items as evidence he's doing something to stimulate business productivity given that a large bulk of his budget will be focused elsewhere, such as transfers to the provinces.


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