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The Canadian federal budget calls for a new capital cost allowance rate that could lead to rail industry investments totaling about $300 million over the next five years and 6,000 jobs in the rail supply and service sectors, according to the Railway Association of Canada (RAC).

A tax policy change decreases the depreciation rate for new and re-built locomotives. The new capital cost allowance rate of 30 percent for locomotives would make Canadian railroads' rates more competitive with U.S. roads' depreciation rates, RAC said. U.S. railroads can fully depreciate their rolling stock within eight years while it takes Canadian roads more than 20 years.

More than 40 percent of a locomotive's value is tied to computer-based information systems and advanced technology. At the current pace of research and development, most major locomotive parts must be replaced within 10 years, according to RAC, which represents the interests of 60 member freight and passenger railroads.

"With globalization of trade and the fact that we compete on a North American basis, this initial change in tax policy is good for Canadian business and workers," said RAC President and Chief Executive Officer Cliff Mackay in a prepared statement. "It is particularly welcome at a time when there is an urgent need for competitive transportation services and more opportunities for Canada's rail-component manufacturers and service providers."

The rate change also will encourage the acquisition of more fuel-efficient locomotives, he said. Although the tax policy change is an important first step, it isn't the last one required by the rail industry, said Mackay.

"I hope the government will take the next step to increase the current Canadian depreciation rate of 15 percent to support modernization of freight cars and intermodal equipment to help Canada and its shippers be more competitive in international markets," he said.