Chapter History S4-F15-C1, Manufacturing and Processing

Introduction

The purpose of a Chapter History page is to highlight any amendments to the information contained in a chapter of an income tax folio, including amendments to the information originally contained in an interpretation bulletin that has been cancelled and replaced with a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.

Update January 13, 2025

The summary has been updated to acknowledge the new Clean Technology Manufacturing Investment Tax Credit and to refer to available CRA resources. The Clean Technology Manufacturing Investment Tax Credit is not discussed in this folio.

¶1.22.1 and 1.22.4 have been amended to reflect legislative amendments made in Bill C-59, which received Royal Assent on June 20, 2024, that extend the availability of the tax rate reduction for zero-emission technology manufacturing profits to taxation years that begin in 2022 to 2034 (previously to 2031). The amount of the rate reduction is gradually phased-out for taxation years that begin after 2031 (previously 2028).

¶1.28.1 The words non-employees in the second bullet have been replaced with the word “persons” to align with the wording used in the Regulations.

¶1.37.2 has been revised to reflect the amendments made in Bill C-59 to the definition of qualified ZETM activities in section 5202 of the Regulations to expand the list of eligible property the manufacturing or processing of which may constitute a qualified ZETM activity. Specifically, the list of eligible property the manufacturing or processing of which may constitute a qualified zero-emission technology manufacturing activity now includes the following:

• nuclear energy equipment (clause (L)),
• heavy water used for nuclear energy generation (clause (M)),
• nuclear fuels used for nuclear energy generation (clause (N)), and
• nuclear fuel rods (clause (O)).

This amendment is applicable to taxation years that begin after 2023. There are also minor wording changes for clarity.

¶1.37.3 has been revised to reflect the amendment made in Bill C-69 which removed the requirement that Zero Emission Vehicles (ZEV) meet certain conditions in the "accelerated investment incentive property" rules in order for the manufacturer of the vehicle to claim the zero-emission technology manufacturing deduction. That is, the reference to paragraph (d) in the definition of ZEV has been removed. This amendment is deemed to have come into force on January 1, 2024.

¶1.49 and 1.50 have been revised to reflect the amendments made in Bill C-59 to amend the preamble to Classes 43 and 53  in Schedule II to the Regulations as a consequence of the introduction of Classes 57 and 58. These amendments ensure that a property that is included in Classes 57 or 58 is not included in Classes 43 or 53. Bill C-59 received Royal Assent on June 20, 2024. These amendments are deemed to have come into force on January 1, 2022.

Update January 30, 2024

A fourth paragraph has been added to the Summary to include amendments made to subsection 1100(2) of the Regulations due to the accelerated investment incentive (AII) measures and the full expensing measures for Class 53 property introduced by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29 which was enacted on June 21, 2019. Subsection 1100(2) of the Regulations was subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c. 23 which was enacted on June 29, 2021. These new measures provide a first-year enhanced CCA in respect of property that is accelerated investment incentive property (AIIP) as defined in new subsection 1104(4) of the Regulations. Subsection 1104(4) of the Regulations was introduced by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29, and subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c. 23.

A fifth paragraph has been added to the Summary to include amendments made to section 5202 of the Regulations and section 125.2 regarding zero-emission technology manufacturing (ZETM) as well as a temporary immediate expensing incentive in respect of designated immediate expensing property (DIEP) acquired by an eligible person or partnership (EPOP). Both these measures were introduced by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10, which was enacted on June 23, 2022.

¶1.22.1 has been added to describe the ZETM deduction of a corporation for a tax year. This new paragraph reflects legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10.

¶1.22.2 has been added to describe the ZETM profits of a corporation for a tax year and how they are determined. This new paragraph reflects legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10.

¶1.22.3 and 1.22.4 have been added to describe how the ZETM deduction is calculated. Table 1 has been added to illustrate the yearly corporate tax reduction schedule as well as the gradual phase-out of the ZETM deduction. These new paragraphs reflect legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10. A Notice of proposed legislative change has been added after Table 1 to alert readers to an August 2023 proposal to extend the availability of the reduced rates.

¶1.28.1 has been added to describe the definition of ZETM cost of labour for corporations. This new paragraph reflects legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10.

¶1.32.1 has been added to describe the definition of ZETM cost of capital for corporations. This new paragraph reflects legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10.

¶1.37.1 to 1.37.5 have been added under the heading, Qualified zero-emission technology manufacturing activities (qualified ZETM activities) to describe which manufacturing or processing activities meet the definition of a qualified ZETM activity. These new paragraphs reflect legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10 and Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022. A Notice of proposed legislative change has been added after ¶1.37.5 to alert readers to an August 2023 proposal to amend the definition of qualified ZETM activities in section 5202 of the Regulations.

¶1.43.1 to 1.43.5 and 1.43.8 have been added to describe the general operation of the AII and the full expensing measures as well as the conditions that a property must meet to qualify as AIIP. These new paragraphs reflect legislative changes made by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29, and subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c. 23. These changes provide for a temporary enhanced first-year CCA rate for manufacturing and processing (M&P) property.

¶1.43.6 has been added to describe the general operation of new subsection 1104(4.1) of the Regulations. This new paragraph reflects legislative changes made by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c 23.

¶1.43.7 has been added to describe the general operation of new subsection 1100(2.02) of the Regulations This new paragraph reflects legislative changes made by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c 29 and subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c 23.

¶1.43.9 and 1.43.10 have been added under the heading, Immediate expensing incentive, to describe the immediate expensing incentive that is available for designated immediate expensing property (DIEP) acquired by an eligible person or partnership (EPOP). These new paragraphs reflect legislative changes made by Bill C-19, Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10. A Notice of proposed legislative change has been added after ¶1.43.9 to alert readers to an August 2023 proposal to amend subsection 1100(3) with the result that no proration of the CCA calculation is required in respect of the immediate expensing deduction where the tax year is less than 12 months.

¶1.45 has been modified to reflect that M&P machinery and equipment acquired after 2015 is no longer included in Class 29 but is eligible for an accelerated CCA under Class 53 pursuant to legislative changes made by Bill C-59, Economic Action Plan 2015 Act, No. 1, S.C. 2015, c. 36 which was enacted on June 23, 2015.

¶1.49.1 has been added under a new heading, Class 43 accelerated investment incentive property – first-year enhanced CCA. This new paragraph reflects legislative changes made by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29 and subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c. 23. Table 2 has been added under ¶1.49.1 to illustrate and compare the CCA for Class 43 under the half year rule and the first‑year enhanced CCA for AIIP. Example 3 has been added to illustrate and compare the CCA that may be claimed in the first and second years under the half year rule and the first-year enhanced CCA for AIIP.

A Notice of proposed legislative change has been added after ¶1.50 to alert readers to an August 2023 proposal to add new Classes 57 and 58.

¶1.50.1 has been added under a new heading, Class 53 full expensing measures. This new paragraph reflects legislative changes made by Bill C-97, Budget Implementation Act, 2019, No. 1, S.C. 2019, c. 29 and subsequently amended by Bill C-30, Budget Implementation Act, 2021, No. 1, S.C. 2021, c. 23. These changes provide for a temporary first-year CCA rate of 100% for Class 53 property acquired before 2024.

Table 3 has been added under ¶1.50.1 to illustrate and compare the CCA for Class 53 property under the half year rule and the gradual reduction in the enhanced CCA for AIIP acquired after 2024. Example 4 has been added to illustrate and compare the CCA that may be claimed in the first and second years under the half year rule and the first-year enhanced CCA.

The Reference section has been updated to add references to section 125.2 of the Act, as well as subsection 1100(0.1), subsection 1104(3.1) and section 5204 of the Regulations.

Update February 16, 2017

The wording in ¶1.20, ¶1.25, ¶1.44 and ¶1.52 of the French version only has been revised for readability purposes.

¶1.28 and 1.32 have been revised to improve consistency in the use of the term “related” versus “associated”.

Example 2 has been revised to clarify that Corporation B is related to Corporation A and to refer to “bien” instead of “bâtiment” in the second paragraph. These changes affect only the French version of the Chapter.

Update September 27, 2016

General

Income Tax Folio S4-F15-C1, Manufacturing and Processing, replaces and cancels Interpretation Bulletin IT-147R3, Capital Cost Allowance – Accelerated Write-off of Manufacturing and Processing Machinery and Equipment.

In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below.

The content under the heading Manufacturing and processing profits deduction – M&P credit (¶1.1 to 1.43) is substantially the same as the content previously contained in ¶1 to 35 of Interpretation Bulletin IT-145R (Consolidated), – Canadian Manufacturing and Processing Profits – Reduced Rate of Corporate Tax (Cancelled).

Legislative and other changes

¶1.44 has been added to discuss the capital cost allowance rate and the half-year rule applicable to Class 29 of Schedule II of the Regulations. Former ¶1 and 2 of IT-147R3 have been removed as the content is outdated.

¶1.45 has been added to discuss the relevant timing in subparagraph (c)(iii) of Class 29.

¶1.46 (formerly ¶3 of IT-147R3) has been revised to include Canadian field processing to correspond to subparagraph (a)(ii) of Class 29.

¶1.48 (formerly ¶4 of IT-147R3) has been revised to include a reference to subparagraph (b)(vi) of Class 29. Former ¶5 to 8 of IT-147R3 have been removed as the content is not specific to the topic of manufacturing or processing. Former ¶17 of IT-147R3 has been removed as part of the content is outdated and part is discussed in ¶1.45.

¶1.49 has been added to discuss Class 43 of Schedule II of the Regulations.

¶1.50 has been added to discuss Class 53 of Schedule II of the Regulations.

¶1.58 to 1.61 have been added to discuss qualified property for purposes of an investment tax credit.