Immediate expensing for manufacturing and processing buildings

The capital cost allowance (CCA) system determines the deductions that a business may claim at specified rates each year in respect of the capital cost of its depreciable property. Currently, eligible buildings in Canada used to manufacture or process goods for sale or lease (manufacturing or processing buildings) are prescribed a CCA rate of 10 percent (the regular CCA rate of four percent, plus an additional allowance of six percent). To be eligible for the six percent additional allowance, at least 90 percent of the building’s floor space must be used to manufacture or process goods for sale or lease.

Budget 2025 proposes to provide temporary immediate expensing for the cost of eligible manufacturing or processing buildings, including the cost of eligible additions or alterations made to such buildings. The enhanced allowance would provide a 100 percent deduction in the first taxation year that eligible property is used for manufacturing or processing before 2030, provided the minimum 90 percent floor space requirement is met.

Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for immediate expensing only if both of the following conditions are met:

• Neither the taxpayer nor a non-arm’s-length person previously owned the property; and
• The property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.

In cases where a taxpayer benefits from immediate expensing of a manufacturing or processing building, and the use of the building is subsequently changed, recapture rules may apply.

This measure would be effective for eligible property that is acquired on or after Budget Day and is first used for manufacturing or processing before 2030 and will be subject to a phase-out. Specifically, an enhanced first-year CCA rate of 75 percent would be provided for eligible property that is first used for manufacturing or processing in 2030 or 2031. A rate of 55 percent would be provided for eligible property that is first used for manufacturing or processing in 2032 or 2033. The enhanced rate would not be available for property that is first used for manufacturing or processing after 2033. 

Other clean energy and investment tax incentives

The Budget proposes changes to certain other investment tax credits and incentives:

• Critical Mineral Exploration Tax Credit (CMTEC): The Budget proposed to expand the eligibility of this tax credit to include a variety of additional critical minerals, such as bismuth, cesium, chromium, tin, and tungsten. This tax credit offers an additional income tax benefit for individuals who invest in eligible flow-through shares of corporation who have specified mineral exploration expenses incurred in Canada and renounced to share investors. This measure applies in respect of expenditures renounced under a flow-through share agreement entered into after Budget Day and before March 31, 2027.
• Clean Technology Manufacturing Investment Tax Credit: Budget 2025 proposes to expand the list of critical minerals eligible for this investment tax credit to include antimony, indium, gallium, germanium, and scandium. This measure applies in respect of property acquired or becomes available for use, after Budget Day.
• Investment Tax Credit for Carbon Capture, Utilization and Storage (CCUS): The Budget proposes to extend the availability of the full credit rates (37.5 to 60 percent) by five years, so that the full rates apply to eligible expenditures incurred from the start of 2022 to the end of 2035. Eligible expenditures that are incurred from the start of 2036 to the end of 2040 would continue to be subject to the lower credit rates (18.75 to 30 percent) The government will also postpone the previously announced review of the CCUS investment tax credit rates, to be undertaken now before 2035 (rather than before 2030).
• Clean Electricity Investment Tax Credit: The Budget proposes to include the Canada Growth Fund as an eligible entity under this investment tax credit. It also proposes to introduce an exception so that financing provided by the Canada Growth Fund would not reduce the cost of eligible property for the purpose of computing this investment tax credit. These measures apply to eligible property that is acquired and that becomes available for use on or after Budget Day.