Tax experts are theorizing that a proposal allowing U.S. companies to write off capital investments immediately, part of a sweeping tax-reform plan announced by the White House last week, could put Canadian companies at a further disadvantage to their southern counterparts.
White House officials laid out their plans to overhaul the U.S. tax system in a nine-page document last week, a paper that includes a proposal to significantly accelerate capital cost allowances for corporations, allowing U.S. firms to immediately deduct capital expenses for items such as computers, heavy machinery and other non-structure investments.
The immediate writeoffs would effectively create an up-front tax break on asset purchases, freeing up cash flows for U.S. companies compared to Canadian firms that deduct capital investments over many years.
The document called the modification an "unprecedented level of expensing with respect to the duration and scope of eligible assets," and tax experts say the change — if successfully passed — would mark one of the biggest structural shifts in U.S. tax policy in decades.
Experts say the deductions for capital investments, summarized in a single paragraph inside the document, have been overshadowed by the move to slash federal corporate tax rates from 35% to 20%. The proposal also caps the tax on small businesses at 25%, down from closer to 40% today.
Today, corporations in Canada and the U.S. typically write off capital expenses for depreciating assets over years-long periods, often stretching more than a decade. The U.S. proposal would effectively eliminate that pay-out period entirely.
