Backgrounder: Accelerated Capital Cost Allowance What is it? The 2007 federal budget introduced an accelerated capital cost allowance (ACCA) in the form of a two-year straight line depreciation rate for business investments in manufacturing and processing machinery and equipment. The ACCA allows businesses to write off these investments against taxable income more rapidly than the 30 percent declining balance method of depreciation previously applied to manufacturing and processing assets. Why is Budget 2011 important? The ACCA for manufacturing investments was slated to expire at the end of this year. Budget 2011 extends this eligibility period to the end of 2013. What is the benefit? The two-year write-off generates important cash flow for companies investing in new production technologies - and cash flow is critical for companies that are investing to grow their business as they emerge from recession. Under the traditional model of depreciation (30 per cent declining balance), it takes 14 years to depreciate 99 per cent of capital expenditures. By contrast, the ACCA allows businesses to depreciate their investments completely over a three-year period, allowing them to deduct almost 42 cents more per dollar invested. This provides an additional return on capital of approximately 12-15 per cent. Extending the ACCA will save Canadian manufacturers more than $600 million in 2012-13, and an estimated $2.5 billion over the next five years. Why is it important? Canadian manufacturers have not yet recovered from the deepest industrial recession since the 1930s. Neither have their customers. Both are facing unprecedented risk in the form of a soaring Canadian dollar, high commodity costs, limited access to financing, and intense global competition. The two-year write-off nurtures a culture of investment at such a critical time in our nationʼs economy. What is the impact? Although manufacturing investment declined significantly between 2006 and 2009, CME estimates the positive cash-flow benefits of the two-year write-off boosted investment by more than 11 per cent above levels that otherwise would have been experienced over the same time period. This investment in new manufacturing and processing technology is a critical driver of innovation and improved productivity performance, which allows Canadian companies to remain competitive on the world stage.

- more -

Backgrounder: Accelerated Capital Cost Allowance -- 2 Any investment in manufacturing and processing machinery and equipment (class 43.2 assets) made before the end of 2013 qualifies for the accelerated capital cost allowance. This accelerated depreciation measure is subject to the half-year rule. This means that 25 per cent of the cost of the asset can be depreciated the first year, 50 per cent the second year, and 25 per cent the third year. How does it work? Any investment in manufacturing and processing machinery and equipment (class 43.2 assets) made before the end of 2013 qualifies for the two-year write-off. This accelerated depreciation measure is subject to the half-year rule, which means that 25 per cent of the cost of the asset can be depreciated the first year, 50 per cent the second year, and 25 per cent the third year. How does this policy compare to the United States? President Obamaʼs new tax plan enables American manufacturers to write-off one-hundred per cent of their expenditures on machinery and equipment in the year those investments are made. Who supports extending the eligibility period for the ACCA? CME's top priority for the 2011 budget has been to secure an extension of the two-year write-off for at least an additional two years, to the end of 2013. This is a priority that is supported by the 40 industry associations that are members of the Canadian Manufacturing Coalition chaired by CME. It is also a priority shared by the Canadian Labour Congress. The broad range of support for this tax measure reflects the importance of investing in new production technologies for the 1.8 million Canadians employed in Canada's manufacturing sector.

- 30 -