Canadian Legislative News

On November 21, 2018, the Minister of Finance Bill Morneau tabled the Fall Economic Statement in the House of Commons, proposing the highly anticipated government response to the U.S. corporate tax cuts. While the update does not include new initiatives for the automotive industry and small businesses, the government reiterated its commitment to signing the United States Mexico Canada Agreement (USMCA), reduce small business taxes, and continue to promote trade diversification.

The centerpiece of the statement is a number of tax incentives to address Canada’s competition disadvantage against other countries, especially the United States which has lowered its corporate tax rates and accelerated depreciation rates. Under the new plan, businesses will now be allowed to immediately write off the full cost of machinery and equipment used for the manufacturing and processing of goods, as well as the full cost of clean energy equipment, and recover quickly the cost of their investment through the "accelerated investment incentive" and "accelerated capital cost allowance."

The Department of Finance estimates that with immediate expensing and the accelerated investment incentive, the average overall marginal effective tax rate in Canada on new investments will fall from 17.0 percent to 13.8 percent, lower than in the U.S., which also allowed for accelerated investment incentive as part its tax cut package. These measures will boost investment in Canada and reduce the cost of production, especially for Canadian manufacturers.

This is excellent news for fleets. Under the previous depreciation rates, a company could write-off 15 percent in the first year of a new vehicle purchased, With the new accelerated investment Incentive, the same company can now write-off 45 percent in the first year. Fleet managers will be able to update their fleets sooner than expected with newer and more efficient vehicles.

These measures will take effect in the months ahead.

Other key takeaways include new initiatives to support journalism in Canada, a 10+ year investment pledge toward a social finance fund, reforms to reduce interprovincial trade barriers, and an export diversification strategy with a goal to increase exports to countries other than the U.S. by 50 percent by 2025. An additional $800 million is earmarked for the strategic innovation fund to support business innovation. Some of that funding will come directly from revenues accumulated through government-targeted countermeasures in response to U.S. steel and aluminum tariffs.