Investment Tax Credit

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Investment tax credit is basically a tax related incentive that allows individuals or entities to deduct a certain percentage of specific investment related costs from their tax liability apart from usual allowances for depreciation. Thus, investment tax credits are more or less similar to investment related allowances that allow businesses or investors to deduct a specific percentage of certain capital related costs from their income, which is taxable.

The federal government has been granting Investment tax credit for many years now to entities that are investing newly in specific categories of asset, especially equipment. The Investment tax credit, which was crafted for stimulating the economic condition of a country by way of encouraging capital related expenditure, has been a prominent feature of tax related legislation and has been granted in varied amounts since the year 1962. In the year 1985, it was six or 10 percentage of the purchasing price, based on an asset’s life. The Investment tax credit has been reduced from the tax related bill in the form of credit and not from the pre-taxable income. In addition to this, it has also not witnessed any sort of depreciation. The 1986 tax reform act had cancelled the investment credit for any of the property, which was placed in service after the 1st of January 1986.

While exemptions and deductions minimize your income amount, which is taxable, the tax credits minimize the actual tax amount owed. Governments give tax credits for the purpose of promoting a certain behavior, for example, replacing an older appliance with ones that are more efficient, or to assist those taxpayers who have been at disadvantage by reducing the total housing cost.

How to calculate investment tax credit?

In order to calculate investment tax credit, you will have to multiply the net capital investment amount made during the year that was taxable by the investment tax credit percentage, which has been annualized. This particular percentage is estimated by dividing the SBT rate of tax that was applicable during the year by the rate of 2.3 per cent. The outcome of this multiplication is further multiplied by the adjusted and appropriate gross receipts percentage as required. 

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