On March 23rd, the Ontario Government released its annual budget, which prioritizes healthcare spending and staffing and infrastructure development. Amongst the various measures aimed at supporting businesses, including workforce development and expanded access to the small business corporate income tax rate, the most significant item for many small to medium-sized businesses in Ontario is the Ontario Made Manufacturing Investment Tax Credit (OMITC).
Ontario Made Manufacturing Investment Tax Credit
The OMITC offers a refundable corporate income tax credit of up to 10% of eligible investments, capped at $2 million per year, for Canadian-Controlled Private Corporations (CCPCs) with a permanent establishment in Ontario. This tax credit applies to qualifying capital investments in buildings, machinery, and equipment for use in manufacturing or processing within Ontario, with a cap of $20 million per taxation year for associated corporate groups.
Corporate Eligibility
To qualify, the corporation making the eligible purchase must:
- Be a CCPC throughout the tax year
- Carry on business through a permanent establishment in Ontario
- Not be exempt from tax
Investment Eligibility
The OMITC covers manufacturing and processing property purchased from third parties. It is generally applicable to Capital Cost Allowance (CCA) Class 1 (building) expenditures related to the construction, renovation, or acquisition of manufacturing facilities available for use on or after March 23, 2023. To qualify, 90% of the building’s floor space must be dedicated to manufacturing or processing in Ontario by the end of the corporation’s taxation year. The building must also be eligible for the additional 6% CCA rate under Federal tax regulations.
Similarly, the credit applies to CCA Class 53 (machinery and equipment) expenditures used in the manufacturing or processing of goods in Ontario. The machinery must be acquired and available for use between March 23, 2023, and December 31, 2025. After 2025, qualifying expenditures eligible for CCA Class 43 would be eligible.
Investment Exclusions
The credit excludes manufacturing and processing property:
- purchased from non-arm’s length parties,
- previously owned by non-arm’s length parties, or
- held as a leasehold interest by the qualifying corporation or an associated corporation at any time.
It also excludes property that has been:
- previously claimed by the qualifying corporation or an associated corporation under the OMITC rules,
- purchased from a vendor with a right or option to acquire or lease all or part of the property, or the qualifying corporation grants another party a right or option to acquire it.
Additionally, Class 2 to 12 property transferred to Class 1 under an election or leased to a lessee exempt from tax under section 149 of the Act does not qualify.
Tax Treatment of Credit Received
Amounts received through the OMITC would be considered a government inducement, subsidy or grant; hence, represent taxable income for the corporation in the year of receipt. However, income tax elections may be available to reduce the cost of eligible investments by the amount of credit received instead of including the credit received as taxable income.
If you have any inquiries regarding the OMITC, other items from the Ontario or Federal budget, and how they may impact your business, please consult your Bateman MacKay Business Advisor.
