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ACCELERATED DEPRECIATION ON LEASED EQUIPMENT

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!