How Equipment Purchases Can Reduce Your Taxes: A Quick and Easy Guide for Compounders

What if you could give your future self a tax break? What if you could make a decision now that would save your business money later on? As the end of year approaches, now is the time to get in your tax-deductible purchases. For many compounding pharmacies, equipment is a necessary expense that can quickly add up. Fortunately, pharmacy equipment is one of those business expenses that can be tax-deductible. Here’s what you need to know to benefit from equipment tax breaks.

How can equipment purchases reduce my taxes?

According to Canada’s capital cost allowance (CCA) tax deduction, Class 53, businesses are allowed to immediately deduct (or write off) from their taxable income in the first year of purchase 50% of the price of qualified equipment that is purchased and put into use before the end of fiscal year-end – December 31, 2024, for most businesses. Canada’s Revenue Agency (CRA) also has a temporary accelerated CCA on Class 53 equipment, allowing a 75% deduction of the price of qualified equipment in the first year of purchase if bought after November 21, 2018, and put into use before 2028.

Take home — eligible equipment purchases put into service before December 31, 2024, are eligible for the 75% write-off in your corporate income tax returns.

Medisca Chief Financial Officer Mitchell Rubin comments on this opportunity:

“While end of year can be a hectic time, it’s also a great opportunity for pharmacy owners to reflect and ask themselves - Could my pharmacy benefit from new technology or equipment next year? If so, pharmacies should consider purchasing the equipment in November because of the potential Class 53 tax deductions, as the equipment has to be in service by December 31, 2024, for them to take the deduction.”

Takeaway here — make sure you purchase your equipment in advance to ensure it is in use before the end of the year and consult with your supplier representatives on lead times.

Can you give me an example of tax-deduction savings?

• My pharmacy’s gross income is $1,000,000.
• My pharmacy’s cost of goods sold and operating expenses (e.g., purchases, office supplies, insurance, and salaries) is $700,000.
• My pharmacy’s taxable income is $300,000 (calculated as $1,000,000 minus $700,000).
• My pharmacy’s qualified equipment purchases this year total $50,000. According to Class 53, I can deduct 75% of this amount, bringing my taxable income down to $262,500 (calculated as $300,000 minus $37,500). You only have to pay taxes on this new amount.
• By not having to pay taxes on the $50,000 invested in equipment, your pharmacy can save a total of $10,125 based on an average Federal and Provincial Corporate Income Tax Rate of 27% ($37,500 x 0.27)*.

How soon can I benefit from tax savings?

The shorter the time between the purchase and filing your taxes — the quicker the savings. Purchasing equipment at the end of the fiscal year means you only need to wait a few months until you file your corporate income tax returns to see the benefit.

What equipment qualifies for tax deduction?

Class 53 recognizes equipment or machinery that is used in Canada primarily in the manufacturing or processing of goods for sale or lease. It is recommended that you consult with your tax advisor for further details.

How can I save more with Medisca?

As your Partners In Wellness™, we are committed to delivering quality and innovation at an unbeatable price. Every year, as the end of year approaches, Medisca runs its biggest equipment sale so that customers can further enhance their potential savings. With up to 35% off** this year’s equipment, your pharmacy can invest more for less. From hoods, mixers, capsule machines, molds, balances, ovens, and more — we are offering big savings on an extensive portfolio of offerings.

How will you utilize your tax reductions? Will you further invest in your business or simply enjoy the savings?

*The tax savings refers to the amount a business would save in taxes by deducting the full equipment cost from their taxable income, which is permissible according to the CRA's accelerated CCA. Tax rate differs per province and corporate size. Note that this is for demonstration purposes only and should not be relied on as tax advice.

**Limited time offer until December 15, 2024. Terms and conditions apply. Contact your Medisca Account Executive for more details on this promotion.

The content of this webpage is for informational purposes only of a general nature and does not address the circumstances of any particular individual or entity. Nothing contained herein shall be considered financial advice and should not be relied on. You should seek independent financial and taxation advice to validate how the information contained herein relates to your unique circumstances.