A change in the Liberal government’s Budget 2025 could have immediate effects in Calgary for the construction industry, as rules around expensing buildings and amortization could change the way building owners see projects.
Under the proposed budget, the prescribed capital cost allowance for buildings that is currently 10 per cent per year would immediately go to 100 per cent for buildings that are used to manufacture or process goods for sale.
Under the new temporary rules, those buildings would have to be dedicated to 90 per cent or above for manufacturing activities.
“The productivity super deduction, you can expense 100 per cent of the equipment, the buildings, the technology you’re going to be using, already you’re going to be doing, the automation you’re going to bring. I mean, that is a game changer for a lot of people who work with uncertainty,” said Canada’s Minister of Finance François-Philippe Champagne.
“If you can expense 100 per cent the first year, obviously, from a cash flow perspective, that’s what you need to turbo charge.”
Bill Black, CEO of the Calgary Construction Association, said it would change the calculations that firms are doing around projects for risk and the time value of money.
“What it does is it potentially removes the cost of the time, cost of money for developers who are already fighting inflation and other aspects that have increased the baseline cost, if you then add financing cost and tax write-offs. These are all part of the equations that they use in their pro forma that has to basically pencil out, as we say, for it to be a viable business choice,” he said.
“Things like that can turn a bad deal into a better deal, maybe even a good deal, in some cases, depending on the overall situation. I would say it is a catalyst for engagement and investment.”
He said that for a firm, getting a write-off up front instead of a long-term amortization of a building meant that the liability carried on the books is reduced or eliminated.
“The ability to write off faster, the ability to reduce the overall impact, financial impact over time, and offset interest rates or other increased costs, that is what the private money needs to see,” said Black.
“You’ve got your input costs, and then your expense costs. So you’ve got construction, you’ve got labour, you’ve got land acquisition, you’ve got that, and then you’ve got this. How long do I have to carry that money on my books? It gives this frees up capital to go into something else, because the write-off comes early. It completely greases the wheels of how the bigger financial picture plays out.”
What the construction industry in Calgary was looking for, though, was for those promises to become a concrete reality in a relatively short timeframe.
“The reality is, the words are good. The words have been good for a while. If there are not actions that back up the words in the next two or three months, cynicism will kick back in, whether you’ve greased the wheels or not,” said Black.
“Incentives are great, but you also got to take the red tape. You’ve got to take the indecision, the uncertainty out of ‘will I get approved? Or will I get dragged on for 18 months or 18 years trying to get approval?’ You’ve got to do it all. But every step counts. Every step matters, and we will be watching for actions and actual projects.”
