2024-1003041I7 Ontario Made Manufacturing ITC ("OMMITC")

Principal Issues: 1. Whether the full amount of the OMMITC can be claimed for acquisitions of eligible property after March 23, 2023, but before the qualifying corporation's year end. 2. Whether the OMMITC is government assistance which reduces the capital cost of the eligible property acquired for CCA purposes. 3. Whether a qualifying corporation can claim both the OMMITC and the Regional Opportunities Investment Tax Credit ("ROITC") in respect of the same property. 4. Whether a qualifying corporation can claim the OMMITC in respect of property that is being leased to a different taxpayer who is using the property for manufacturing or processing.

Position: 1. Question of fact, but likely yes. 2. Yes. 3. Question of fact, but likely yes. 4. Question of fact, but likely yes.

Reasons: 1. The OMMITC claim is calculated based on a qualifying corporation's eligible expenditures in the taxation year in respect of eligible property. Where a qualifying corporation has an eligible expenditure for the purpose of the OMMITC, the full claim can be made in the taxation year. Prorating the OMMITC is not necessary unless a claim is made in a short taxation year. 2. The OMMITC would generally be considered assistance from a government and the capital cost of such property would be reduced pursuant to subsection 13(7.1) of the Income Tax Act. 3. Where the conditions set out in the definition of "eligible property" in both subsection 97.1(14) and 97.1(17) of the Ontario Taxation Act are met, it is possible that a qualifying corporation could claim both the ROITC and OMMITC in respect of the acquisition of a particular building. 4. Clause 97.2(17)(3)(ii)(B) of the eligible property definition in the Ontario Taxation Act specifically includes property to be leased, in the ordinary course of carrying on a business in Ontario of the qualifying corporation, to a lessee who can reasonably be expected to use the property in Ontario primarily in the manufacturing or processing by the lessee of goods for sale or lease.

Author: Wallace, Ryan
Section: 12(1)(x), 13(7.1), Ontario Taxation Act, 2007 97.2(1), 97.2(2), 97.2(4), 97.2(17)

XXXXXXXXXX                                                      Income Tax Rulings Directorate
Collections and Verification Branch                       Ryan Wallace, CPA
Business Compliance Directorate                         2024-100304
Canada Revenue Agency

XXXXXXXXXX                    

May 1, 2024

Dear XXXXXXXXXX:

Re: Ontario Made Manufacturing Investment Tax Credit (“OMMITC”)

We are writing in response to your email on March 4, 2024, and subsequent discussion on March 14, 2024, with respect to your questions regarding the Ontario Made Manufacturing Investment Tax Credit (“OMMITC”).

Specifically, you asked the following questions:

1. Whether the full amount of the OMMITC can be claimed for acquisitions of eligible property after March 23, 2023, but before the qualifying corporation’s year end.

2. Whether the OMMITC is considered government assistance and reduces the capital cost of the eligible property acquired.

3. Whether a qualifying corporation can claim both the OMMITC and the Ontario Regional Opportunities Investment Tax Credit (“ROITC”) for the acquisition of an eligible property in a taxation year.

4. Whether a qualifying corporation can claim the OMMITC in respect of property that is leased to a taxpayer that is using the property for manufacturing or processing goods for sale or lease.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced) as well as the Ontario Taxation Act, 2007. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. However, we can provide the following comments.

The OMMITC is a provincial investment tax credit (“ITC”) available to help Ontario manufacturing businesses lower their costs, innovate and become more competitive. The OMMITC is a 10% refundable corporate ITC for qualifying corporations on eligible investments in buildings, machinery and equipment for use in manufacturing or processing in Ontario. A qualifying corporation could receive the OMMITC of up to $2 million per taxation year. (footnote 1)

Pursuant to subsection 97.2(2) of the Ontario Taxation Act, 2007 (the “TA”), the amount of a qualifying corporation’s OMMITC for a taxation year is equal to 10% of the lesser of the total of the qualifying corporation’s eligible expenditures in the taxation year, and $20,000,000 (provided the qualifying corporation is not associated with another qualifying corporation in the taxation year). Additionally, the OMMITC amount calculated under subsection 97.2(2) of the TA is prorated for short taxation years.

A corporation is a qualifying corporation, as defined in subsection 97.2(3) of the TA, if it is a Canadian-controlled private corporation throughout the year, it is not exempt from tax for the year under Part III of the TA and it carries on business in Ontario in the year through a permanent establishment in Ontario.

Subsection 97.2(3) of the TA provides that an expenditure is an eligible expenditure if, inter alia, the expenditure is incurred by the qualifying corporation in respect of the acquisition of eligible property.

Eligible property, as defined in subsection 97.2(17) of the TA, requires four main criteria to be met in respect of a particular property. Among other things, the property must be capital property of the qualifying corporation for the taxation year, considered to have become available for use by the qualifying corporation in the taxation year and on or after March 23, 2023, is not an excluded property (as that term is also defined in subsection 97.2(17)) and is either: (footnote 2)

a) A building, or part of a building, included in Class 1 to which paragraph 1100(1)(a.1) of the federal Income Tax Regulations (“ITR”) applies as a result of an election made under subsection 1101(5b.1) of the ITR,

b) Property acquired on or after March 23, 2023 and before 2026 that is included in Class 53, or

c) Property acquired after 2025 that is included in paragraph (a) of Class 43.

Question #1

As mentioned above, the formula to calculate the OMMITC computes an amount for a taxation year equal to 10% of qualifying corporation’s eligible expenditures in the taxation year to a maximum of $20,000,000 (assuming the corporation is not associated with another qualifying corporation). (footnote 3)   With the exception of short taxation years, there is no requirement to prorate or otherwise reduce the amount of the OMMITC where the property was acquired close to the corporation’s year end.

It is important to note, however, that there are timing conditions to be met for an expenditure incurred in respect of eligible property to be considered an eligible expenditure, as defined in subsection 97.2(4) of the TA. If the property is a building, or part of a building, included in Class 1 to which paragraph 1100(1)(a.1) of the ITR applies (as a result of an election made under subsection 1101(5b.1) of the ITR), then the expenditure in respect of the property must have been incurred in the taxation year or a previous taxation year. On the other hand, If the expenditure is in respect of eligible property that satisfies any of the criteria set out in subparagraphs 1 ii. to v. of the definition of “eligible property” in subsection 97.2(17) of the TA, then the expenditure must be incurred in the taxation year and on or after March 23, 2023.

Additionally, pursuant to paragraph 97.2(4)(d) of the TA, an eligible expenditure does not include an expenditure in respect of eligible property for which the OMMITC was claimed by the qualifying corporation in a prior year or by an associated qualifying corporation. Therefore, once the OMMITC is claimed in respect of an eligible expenditure in a taxation year, the qualifying corporation cannot include those amounts of eligible expenditures in the calculation of the OMMITC in a subsequent taxation year.

As such, there is a time component in the eligible expenditure and eligible property definitions that require the property to be acquired and made available for use at a certain time before the amount can be included in the OMMITC formula. When an expenditure meets the conditions in the definition of eligible expenditure in subsection 97.2(4) of the TA, the full amount of the eligible expenditure can be used to calculate that OMMITC in that taxation year, and prorating the OMMITC is not necessary if the property is acquired shortly before the qualifying corporation’s fiscal year end. This is assuming the year is not a short taxation year.

Question #2

Paragraph 12(1)(x) of the Income Tax Act (the “Act”) provides that, generally, an amount received by a taxpayer in the year from, inter alia, a government is required to be included in the taxpayer’s income from a business or property where the particular amount can reasonably be considered to have been received, under subparagraph 12(1)(x)(iv) of the Act, as, among other things, assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of an amount included in, or deducted as, the cost of property or in respect of an outlay or expense incurred or made.

Subparagraphs 12(1)(x)(v) to (viii) of the Act provide exceptions to the income inclusion under paragraph 12(1)(x). For example, subparagraph 12(1)(x)(vi) provides that paragraph 12(1)(x) does not apply if the amount received by the taxpayer reduced the cost or capital cost of the property or the amount of the outlay or expense.

Subsection 13(7.1) of the Act provides, inter alia, that where, before the property has been disposed of, a taxpayer has received, or is entitled to receive, assistance from a government in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan or deduction from tax, investment allowance or any other form of assistance, the amount of assistance that the taxpayer has received or is entitled to receive will reduce the capital cost of depreciable property. We consider the OMMITC to be assistance from a government in respect of, or for the acquisition of, depreciable property.

As such, where a taxpayer has claimed the OMMITC in a taxation year, subsection 13(7.1) of the Act will apply automatically to reduce the capital cost of the property by the amount of the OMMITC. Consequently, with the application of 13(7.1) reducing the capital cost of the eligible property by the amount of the OMMITC, there would be no income inclusion under paragraph 12(1)(x) due to the exclusion pursuant to subparagraph 12(1)(x)(vi) of the Act.

Question #3

You have also asked us whether a qualifying corporation would be able to claim the ROITC as well as the OMMITC in the same taxation year in respect of a particular property. Very generally, the ROITC, as provided in section 97.1 of the TA, is a 10% refundable ITC for corporations that invest more than $50,000, to construct, renovate or acquire eligible commercial and industrial buildings in qualifying regions in the province of Ontario . (footnote 4)

The legislation relevant to the ROITC is very similar in design to the OMMITC. Upon review of the legislation under both section 97.1 and 97.2 of the TA, no particular provision exists that specifies only the ROITC or the OMMITC can be claimed in respect of a particular property in a taxation year. Both the ROITC and OMMITC rely on the acquisition of eligible property, a term that is separately defined for each credit in subsections 97.1(14) and 97.2(17) of the TA respectively.

The only type of property that would be able to meet the conditions in both eligible property definitions would be buildings included in Class 1 for CCA purposes. Additionally, there are requirements based on the location and the use of the building that would have to be met to satisfy the conditions of both definitions. Furthermore, subsections 97.1(16) and 97.2(16) (footnote 5) of the TA provide that the capital cost of the property acquired, for calculating either the ROITC or OMMITC, will not be reduced where the credits are considered government assistance for the purposes of determining capital cost under the Act. Therefore, the mechanics of these provisions allows the qualifying corporation to use the capital cost of the same building for calculating both the ROITC and the OMMITC.

It is a question of fact whether a particular property would satisfy the conditions of both eligible property definitions in the TA. However, where the property acquired simultaneously meets the conditions set out in definition of eligible property in both subsection 97.1(14) and 97.2(17) of the TA, the qualifying corporation may be able to claim the ROITC and OMMITC in respect of a particular property in a taxation year.

Question #4

As previously noted, eligible property is defined in subsection 97.2(17) of the TA and requires that four conditions be met for property to be considered an eligible property. The condition set out in paragraph 3 of the eligible property definition is most relevant to this question:

“‘eligible property’ means property that satisfies all of the following criteria:

[…]

3. The property is,

i. a building, or part of a building, located in Ontario, or

ii. property, other than a building or part of a building, that is,

A. to be used by the qualifying corporation in Ontario primarily in the manufacturing or processing of goods for sale or lease, or

B. to be leased, in the ordinary course of carrying on a business in Ontario of the qualifying corporation, to a lessee who can reasonably be expected to use the property in Ontario primarily in the manufacturing or processing by the lessee of goods for sale or lease.”

Assuming the other conditions as set out in the definition of eligible property in subsection 97.2(17) of the TA are met, eligible property of a qualifying corporation includes property (other than a building or part of a building) that is to be leased, in the ordinary course of carrying on a business in Ontario of the qualifying corporation, to a lessee who can reasonably be expected to use the property in Ontario primarily in the manufacturing or processing by the lessee of goods for sale or lease.

It is a question of fact whether a qualifying corporation has acquired eligible property that is to be leased, in the ordinary course of carrying on a business in Ontario of the qualifying corporation and whether a lessee uses the property in Ontario primarily in manufacturing or processing of goods for sale or lease. However, provided that the qualifying corporation can reasonably expect the lessee to use the property in Ontario primarily in the manufacturing or processing (by the lessee) of goods for sale or lease, then that condition in the eligible property definition would be met.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 See the webpage Ontario Made Manufacturing Investment Tax Credit for general details about the OMMITC, https://www.ontario.ca/page/ontario-made-manufacturing-investment-tax-credit

2 Eligible property can also include property that is prescribed by the Ontario Minister of Finance or property that meets the conditions prescribed by the Ontario Minister of Finance pursuant to subparagraphs iv. and v. of the eligible property definition. Currently, there are no prescribed properties or prescribed conditions for the purposes of the OMMITC.

3 Associated corporations are essentially required to “share” the $20,000,000 OMMITC limit pursuant to subsections 97.2(6) to (11) of the TA. Where a designation under subsection 97.2(7) of the TA allocating the OMMITC limit to a qualifying corporation that is associated with one or more other qualifying corporations in a taxation year is not made, subsection 97.2(11) will deem the OMMITC limit to be nil.

4 See https://www.ontario.ca/document/regional-opportunities-investment-tax-credit.

5 "97.2(16) For the purposes of this section, capital cost is determined under the Federal Act, except that a credit claimed under this section or section 97.1 that would otherwise be government assistance for the purposes of determining capital cost under the Federal Act shall be deemed not to be government assistance and shall not reduce the capital cost.” 97.1(16) is essentially an identical provision.

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