Category: Manufacturing & Distribution

Ontario Made Manufacturing Investment Tax Credit

Posted on by dflanagan
Overview

The Ontario made manufacturing investment tax credit was passed alongside Ontario 85 bill on May 18th, 2023. It is a refundable investment tax credit designed to support manufacturers in Ontario. Eligible Canadian-controlled private corporations (CCPCs) can receive a 10% tax credit on qualifying investments in manufacturing and processing (M&P) property, up to a maximum $2 million per year. For investments of up to $20 million annually, corporations can claim this credit to reduce their tax liability and reinvest in their business.

Qualification Criteria: Does your corporation qualify?

The corporation must meet ALL the following criteria to claim the credit:

  1. Be a CCPC throughout the tax year;
  2. Have a permanent establishment in Ontario, actively carrying on business throughout the year;
  3. Not be exempt from Ontario corporate tax during the year
Eligible Vs Ineligible Purchases

For corporations to qualify for the credit they must ensure that purchases are NOT excluded property as these properties are considered ineligible for the tax credit claim. From a general standpoint, M&P properties purchased from a third party are considered eligible. Provided below is a more detailed outlook of the M&P property purchases that are customarily considered acceptable:

There are two main classes of investment purchases that qualify for claim of this credit. These include capital cost allowances (CCA) classes 1 and 53. Below is a detailed look of the requirements for each class:

Class 1

  1. Includes buildings that become available for use after March 22nd, 2023.
  2. Consists of buildings that are primarily used (at least 90% of the floor space) for manufacturing or processing purposes at the end of the year. The credit may also apply to buildings under construction or undergoing renovations, provided they meet the manufacturing use requirement.
  3. The building must also be eligible for an additional 6% CCA claim.
    1. To satisfy this requirement the corporation must make an election under regulation 1101(5b.1) of the federal Income Tax Act.

Class 53

  1. Includes machinery and equipment that became available for use after March 22nd, 2023.
  2. Machinery and equipment that are used in Ontario for manufacturing or processing of the goods for lease or sale.
  3. Property that the corporation leases in the ordinary course of business that is used primarily for manufacturing or processing of goods for lease or sale will also qualify.

 

Ineligible Claims & Excluded Property

A claim will be deemed ineligible if the expenditure was acquired by the following means:

  1. If there is an existing contract with a non-arm’s length individual or partnership at the time of acquisition.
  2. For the case of amalgamation, if the predecessor corporation was deemed as a non-qualifying corporation prior to amalgamation.

An M&P property will be deemed an excluded property and will be ineligible to claim the Ontario made manufacturing investment credit if one of the following criteria are met:

  1. If at any time during the properties existence the property was owned by a non-arm’s length party or purchased from a non-arm’s length party.
  2. If the credit was previously claimed by an associated corporation or the qualifying corporation.
  3. If the reason for holding the property was for a leasehold interest by an associated corporation or the qualifying corporation.
  4. If the property was leased to a non-profit organization or a registered charity or any other property that is considered exempt from paying tax under section 149 of the federal Income Tax Act.
  5. If the M&P property was purchased from a seller who has a right or option to either lease or acquire a portion or all the property.
  6. If the corporation that qualifies for the exemption provides a buyer with an option or right to purchase the property.
  7. If the property was transferred following an election from a Class 1 asset to a Class 2 or 12.
How To Claim the Credit

Corporations must file Schedule 572 with their corporate income tax return to claim the Ontario Made Manufacturing Investment Tax Credit. It is essential to file within 6 months after the end of the corporation’s tax year to ensure eligibility. Late filings may result in the credit being denied.

How The Credit Is Calculated

The credit is calculated as 10% of the total eligible expenditures for the year, up to a maximum of $2 million. If a corporation (or group of associated corporations) makes qualifying investments exceeding $20 million, the total credit claimed is still capped at $2 million annually.

Example:

A manufacturing corporation invests $12 million in a new manufacturing facility and $8 million in machinery during the year, for a total investment of $20 million. The corporation can claim a 10% credit on the total qualifying expenditures, resulting in a $2 million tax credit.

If this corporation is associated with another company, the total credit of $2 million must be shared between them, and the total qualifying expenditures (up to $20 million) must be allocated across both companies.

Key Takeways

The Ontario Made Manufacturing Investment Tax Credit provides a significant opportunity for manufacturing businesses or reduce their tax burden on qualifying investments in Ontario. With a refundable tax credit of up to $2 million annually, this incentive can help corporations reinvest in their operations. While there is no immediate deadline for the credit, the Ontario government plans to review the review the program in three years, which may lead to future changes.

Below are key considerations to keep in mind when applying for the Ontario made manufacturing investment tax credit:

  1. The investment limit will be prorated for short taxation years.
  2. The amount of the $20 million expenditure limit must be allocated among all associated corporations.
  3. The total claim for the credit is 10% of the amount of eligible qualifying investments for a maximum of up to $2 million dollars per year.

The Ontario Made Manufacturing Investment Tax Credit is considered a government inducement, subsidy or grant.  Therefore, the resulting refund would be considered taxable income and would need to be reported in the year it is received.  For more detailed advice on how your business can benefit from this credit, please contact one of our trusted advisors.

 

New Mandatory System for Canadian Importers (CARM)

Posted on by Edixon

The CARM system, set to launch on May 13, 2024 has been delayed until October 2024. The Canada Border Services Agency (CBSA) cited the cause for delay is related to the potential impact on their operations should members of the Public Service Alliance of Canada, which represents over 9,000 employees of the CBSA, choose to strike. The Public Service Alliance of Canada launched a strike vote on April 10th.

Though the delay affords importers and other trade chain partners additional time to register for a CARM Client Portal (CCP) account and make related procedural changes, it is clear the CBSA intends to proceed with implementing CARM as the mandatory system of record. Those who import commercial goods into Canada should register their businesses in the CCP and delegate necessary authorities as soon as possible to avoid any potential delays and registration issues in October. Importers looking to use the Release Prior to Payment program should also ensure they are positioned to post the necessary security.

Background

The new system when in place will serve as the official platform for interacting with the Canada Border Services Agency (CBSA) regarding commercial import shipments into Canada. If your corporation imports goods and materials, we recommend that you proactively complete necessary registrations and meet requirements before this date to avoid disruptions in importing and conducting business with the CBSA.

Key points about CARM (CBSA Assessment and Revenue Management):

  1. Mandatory System: The CBSA has announced that CARM will become the mandatory system for Canadian importation. It introduces significant procedural changes for importers.
  2. CCP Account: Importers must register for a CARM Client Portal (CCP) account to continue their importing activities. Without a CCP account, importers will be ineligible to import goods after October 2024.
  3. Supply Chain Considerations: Importers should anticipate potential disruptions and consider increasing critical imports into Canada before the CARM system’s implementation.

Remember to gather the necessary information (such as GCKey, Business Number, and Import/Export Program account) to complete your CCP registration and ensure smooth operations with the CBSA. Individual access and authorization levels within the business account should also be addressed.

For more detailed information on this new mandatory system, please refer to the full article, as written by RSM Canada.

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Have you Considered the Scientific Research and Experimental Development Tax Credit?

Posted on by Edixon

Is your corporation involved in such activities as agricultural and food processing, information and/or communication technology, life sciences, advanced manufacturing, or independent research to name a few. If so, you may be eligible to claim a Scientific Research and Experimental Development Tax Credit (SRED).  When we think of scientific research, we often think of the scientist in the lab wearing a white coat.  This isn’t always the case as many claims are a result of development or improvements to a product or process on the shop floor.

In order to qualify, the work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement.  It is important to note that you do not have to achieve your goal in order to gain new knowledge. For example, if your work allowed you to understand that the idea you tested is not a solution for your situation, this can be considered new knowledge.  What’s important is that the knowledge gained advances the understanding of science or technology, not how the work advanced your corporation or business practices.

The work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.  A systematic investigation or search refers to how SRED work is carried out. It is more than just having a systematic approach to your work or using established techniques or protocols.  A systematic investigation or search must include the following steps:

  1. Defining a problem.
  2. Advancing a hypothesis towards resolving that problem.
  3. Planning and testing the hypothesis by experiment or analysis.
  4. Developing logical conclusions based on the results.

The federal government will allow corporations to claim an Investment Tax Credit (ITC) of 15% on eligible expenditures.  This ITC can be applied against the current year’s income tax or in some cases carried back to a previous tax year or forward to a future tax year.  However, some small business corporations may earn an ITC of 35% on eligible expenditures which may be fully refundable in the year.

Eligible expenditures include:

  • Canadian wages and salaries.
  • An overhead calculation.
  • Canadian R&D-related contracts.
  • Materials.
  • Payments made to eligible research institutions.

The province of Ontario also provides additional incentives to corporations carrying out SRED activities in the province.  Certain small business corporations can earn a refundable Ontario Innovation Tax Credit (OITC) of 8% on eligible expenditures.  In addition, the Ontario Research and Development Tax Credit (ORDTC) is available. It is a 3.5% non-refundable tax credit based on eligible expenditures incurred by a corporation in a tax year.

It is important to note that the deadline to file a SRED claim on your tax return is eighteen months after your taxation year.

So If you haven’t considered SRED, it may be worthwhile to do so.

Operating Costs: Ways Companies Can Reduce the Expenses

Posted on by Edixon

Organizations can fulfill their needs and position themselves for success while keeping operating expenses low by outsourcing non-core functions such as information technology, human resources, and financial accounting.

In this article from RSM Canada, they explore some of the ways that companies can reduce operating expenses while still capturing market growth.

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