On March 23, 2023, the Ontario government tabled the 2023 provincial budget.
Ontario Made Manufacturing Investment Tax Credit
The government is proposing a new 10% refundable corporate income tax credit for capital investments in buildings, machinery and equipment used in manufacturing or processing.
The credit would be available to Canadian‐controlled private corporations (CCPCs) that make qualifying investments and that have a permanent establishment in Ontario. A permanent establishment means a fixed place of business, including an office, a factory or a workshop.
Qualifying investments would be expenditures for certain capital property included in Class 1 or Class 53 for capital cost allowance (CCA) purposes as defined in the federal Income Tax Act of Canada.
Class 1 Property – includes expenditures for constructing, renovating or acquiring buildings used for manufacturing or processing in Ontario that become available for use on or after March 23, 2023.
To qualify as a building used for manufacturing, 90% of the floor space of the building must be used at the end of the corporation’s taxation year for manufacturing or processing in Ontario and the building must be eligible for the additional 6% CCA permitted under the federal Income Tax Act.
Class 53 Property – includes expenditures for machinery and equipment used in the manufacturing or processing of goods in Ontario.
The machinery and equipment would have to be acquired and become available for use on or after March 23, 2023, and before 2026.
After 2025, qualifying expenditures include those for machinery and equipment used in the manufacturing or processing of goods for sale or lease that are included in Class 43(a).
“Available for use” refers to the rules set out in the federal Income Tax Act that determine the taxation year in which a taxpayer can start to claim CCA for a depreciable property.
Qualifying Investment Limit
The credit would be available for qualifying investments up to a limit of $20 million in a taxation year and would be prorated for a short taxation year.
An associated group of corporations would be subject to the $20 million limit.
Ontario Small Business Corporate Income Tax Rate
The Ontario small business corporate income tax rate is available to CCPCs and associated groups of CCPCs.
Currently, the Ontario small business rate applies to the first $500,000 of active business income (i.e. small business limit). The small business limit phases out when a CCPC, or an associated group of CCPCs, has between $10 million and $15 million of taxable capital employed in Canada.
The current small business corporate income tax rate is 3.2%. The general corporate income tax rate is 11.5%.
The government proposed to extend the phase‐out range for Ontario’s small business rate to between $10 million and $50 million of taxable capital employed in Canada and is now introducing legislative amendments to implement this change. This change would mirror the federal government’s extension of the federal phase‐out range for the federal small business corporate income tax rate.
The federal small business corporate income tax rate is 9%. The general corporate income tax rate is 15%.
This proposed change would apply to taxation years that begin on or after April 7, 2022.
Please contact SBLR for any questions with respect to the above.