Ontario-made manufacturing investment tax credit offers opportunity to spur innovation and growth

Growing your business and enhancing the economy made easier with $2 million annually to boost your operations

For Ontario manufacturers that have been hoping to extend product lines or to establish or expand production facilities, the 2023 provincial budget presents a valuable incentive.

On March 22, the budget introduced the Ontario Made Manufacturing Investment Tax Credit. This tax credit enables the province’s manufacturers to receive up to $2 million annually to “grow, innovate, become more competitive and create jobs.”

Manufacturers and processors with a permanent establishment in Ontario can apply for the 10 percent refundable corporate income tax credit for capital investments in buildings, machinery, and equipment.

The credit is a significant part of the province’s Plan to Build and is intended to “help local manufacturing companies invest and expand, so the products of the future are made right here at home.”

According to a 2021 national study of the manufacturing sector, across the country, 350,000 industry jobs were lost to a high Canadian dollar and cheaper production in other countries between 2003 and 2008. Another 182,000 jobs disappeared as a result of the 2008-09 recession.

Ontario was particularly hard hit. Between 2004 and 2018, employment in the province’s manufacturing sector declined by more than 300,000 workers. Statistics Canada tabulated a staggering 27 percent decrease in Ontario manufacturing jobs between 2005 and 2021.

The Government of Ontario wants to eliminate barriers to scaling up growth and strengthen the province’s competitiveness in the process. Given the challenges the manufacturing sector is experiencing with regard to higher input prices and costs of financing, this credit comes as a welcome reprieve.

Qualifying investments for the tax credit

Qualifying investments for this credit will be limited to $20 million in a taxation year (to be shared among an associated group, if applicable). The limit would be prorated for short taxation years.

Quality investments include expenditures for certain properties in Class 1 or Class 53 for capital cost allowance (CCA) purposes:

Class 1: Expenditures for buildings used for manufacturing or processing in Ontario that become available for use on or after March 23, 2023. To qualify, 90 percent of the floor space of the building must be used for manufacturing or processing in Ontario at the end of the corporation’s tax year and the building must be eligible for the additional six percent CCA permitted under the federal Income Tax Act.

Class 53: Expenditures for machinery and equipment used in manufacturing or processing of goods in Ontario that is acquired and becomes available for use on or after March 23, 2023, and before 2026. After 2025, qualifying investments would include expenditures for machinery and equipment used in the manufacturing or processing of goods for sale or lease that are included in Class 43(a).

Leveraging credits to grow and innovate

Focused investment tax credits tent to be an efficient way to stimulate specific segments of the economy. Unlike general rebates, tax credits are more effective in reducing the overall costs of capital investments and improving the outcomes of these investments. In addition to supporting adoption of new initiatives and technologies, investment tax credits grow the manufacturing industry by helping firms close the financing gap, scale up, and achieve commercialization.

Importantly, such credits support innovation because research, development, and commercial deployment of new and improved products is expensive.

Accessing the Ontario Made Manufacturing Investment Tax Credit will also be easier than tapping into Scientific Research and Experimental Development (SR&ED) tax credits, which some manufacturers have had difficult experiences with in the past. SR&ED involves the government determining whether certain activities qualify as technological advancements. Since this is subject to interpretation, applicants may be unsuccessful in accessing the credits after having invested considerable effort in applying for them.

The Ontario Made Manufacturing Investment Tax Credit promises to be more straightforward, giving more manufacturers the opportunity to utilize its benefits. Additionally, as companies leverage this type of financing, the ripple effect will produce larger manufacturing facilities and more jobs in Ontario. These jobs can extend from constructing facilities, to installing equipment, to manufacturing, selling, and distributing products.

Ontario manufacturers who are currently expanding, or plan to expand green initiatives have even more to be excited about. You may be able to combine the Ontario Made Manufacturing Investment Tax Credit with the new federal Clean Technology Manufacturing Investment Tax Credit which offers a 30 percent refundable tax credit for investments in new equipment used to manufacture a variety of clean technologies or to process certain critical minerals.

There is also a range of other federal and provincial/territorial green tax and incentive programs available that can support innovation and growth for your business. Be sure to seek professional advice regarding the specific opportunities available and their potential impact on your plans.

To qualify for the credit, related buildings, machinery, or equipment must be available for use by the end of 2025, so timing is key to accessing the available credit.

Consult an MNP business advisor as soon as possible to help determine the best approach for your organization to leverage current government programs and grow your business.