Economic benefits flow from telecom write-offs
Increasing the capital cost allowance (CCA) for investments in telecommunications equipment would grow the Canadian economy and boost the effectiveness of Canada's wireless networks, according to a Conference Board of Canada study for the Centre for Tax Analysis, Fiscal Incentives and Competitiveness (TAFIC).
Permanently raising the CCA rate on telecommunications equipment from 30 per to 50 per cent is expected to lift business investment, which would add $163 million to Canadian gross domestic product (GDP) and support 1,660 full-time permanent jobs.
“Over the past two decades, telecommunications companies have built their wireless networks largely from scratch across a large, sparsely populated geography. They now face the challenge of moving to the new generation of broadband technology,” said Paul Darby, Executive Director, Forecasting and Analysis.
“Using tax policy to encourage greater investment in telecommunications equipment could have wider benefits than simply boosting economic activity associated with the investment. It could increase Canada’s productivity by encouraging the adoption of newer technology and the development of the digital economy.”
Telecommunications equipment is entitled to a CCA rate of 30 per cent. In comparison, the CCA rate applied to manufacturing equipment is 50 per cent, even though the two types of investments have similar economic depreciation rates (approximately 10 per cent).
If Canada increased the CCA rate for investment in telecommunications equipment to 50 per cent, total investment by the telecommunications industry would increase by approximately $122 million annually (inflation adjusted) in the short term (1 to 3 years). Over the long-run (greater than 5 years), real capital investment would increase by $225 million per year if the measure remains in place.
For every additional dollar invested in telecommunications equipment (over the long term), the Conference Board estimates that real GDP would increase by $0.72, lifting real GDP by $163 million. An additional 1,660 jobs (on a full-time equivalent basis) would be created. Approximately 20 per cent of these new jobs would be in professional, scientific, or technical services—such as computer system design.
The report, From Landline to Mobile Broadband: Tax Drivers of Investment for Canada’s Telecom Industry, was produced for TAFIC. Launched in 2014, TAFIC provides Canadian business leaders and policy-makers with credible, leading-edge quantitative research on all aspects of the Canadian system of taxation and fiscal incentives. Using sophisticated econometric tools to measure the impact of proposed reforms on the Canadian economy, TAFIC publishes evidence-based reports on key issues related to taxation and fiscal incentives.