BC manufacturing and processing investment tax credit: Will you qualify?

Qualifying manufacturing and processing (M&P) businesses in BC may soon be eligible for a new temporary refundable investment tax credit (BC M&P ITC). This new tax credit, proposed in BC Budget 2026, equals up to 15% of eligible manufacturing and processing (M&P) expenditures, subject to a $2 million limit shared by an associated group each year. Under this measure, Canadian-controlled private corporations (CCPCs) may receive up to $300,000 per tax year on eligible purchases of M&P property, effective April 1, 2026. The tax credit rate will be reduced by 2.5% each year, starting April 1, 2031 until it’s fully phased out after March 31, 2036.  

The draft legislation isn’t yet law and is subject to change.

What corporations qualify?

To qualify for the BC M&P ITC, a corporation that makes an eligible expenditure must:

• Be a Canadian-controlled private corporation (CCPC) throughout the tax year.
• Have a permanent establishment in BC at any time in the taxation year.
• Not be exempt from income tax or controlled by a tax-exempt entity.
• Not be an employee venture capital corporation or small business capital corporation.

What expenditures are eligible for this credit?

The BC M&P ITC applies to “eligible expenditures” for “eligible property” acquired and available for use from April 1, 2026 to March 31, 2036.  

To be eligible, the acquired property must be used in BC primarily for M&P purposes by the qualifying CCPC, or by a CCPC lessee under a lease term of at least 72 months (provided it would be eligible for the BC M&P ITC if it owned the property directly). The property must also be either:

• M&P machinery and equipment under Class 43 machinery and equipment for capital cost allowance (CCA) purposes, or  
• M&P buildings (or building additions) under Class 1 for CCA purposes, provided:  
  • At least 90% of the floor space (including additions) is used for M&P purposes at the end of the taxation year.
  • A valid election under Regulation 1101(5b.1) has been made by the 6-month deadline.

The property also can’t be:

• Used, or acquired for use or lease, prior to purchase. 
• Previously owned at any time by a non-arm's length party.
• Used to earn exempt income or leased to a tax-exempt entity.
• Claimed under the BC Scientific Research and Experimental Development tax credit. 

A CCPC must claim the BC M&P ITC in their T2 tax return for the taxation year in which the property becomes available for use (using the form that isn’t yet available), and no later than 18 months after the end of that taxation year (extended from the normal 6-month filing deadline to provide time to amend the return to include the credit).  

How’s the credit calculated?  

The BC M&P ITC is generally calculated as 15% of the net eligible expenditures incurred, subject to a $2 million limit, which must be shared by an associated group each tax year. The credit rate will be reduced by 2.5% per year starting April 1, 2031, and fully phased out after March 31, 2036.  

Eligible expenditures are the capital costs incurred in respect of the property, net of any government or non‑government assistance received or receivable by the CCPC (or a related entity) in respect of the property. Associated groups need to file an agreement each tax year designating the amount of the limit allocated to each corporation.  

Planning considerations

This credit offers an additional incentive for CCPCs to invest in M&P activities in BC; however, determining whether a particular expenditure qualifies can be complex.

In particular, CCPCs need to watch out for repayment events. If a CCPC disposes of the eligible M&P property, begins using it for ineligible activities, or removes it from BC within five tax years of the year it claimed the credit, the CCPC must repay all or a portion of the credit.

In addition, be mindful of these considerations when planning:

• For M&P buildings:
  • Timing and elections: The Regulation 1101(5b.1) separate‑class election must be filed with the corporate income tax return within six months of the taxation year‑end of acquisition to qualify. Late‑filed elections are not accepted.
  • Purchase price allocation: If you buy land and buildings together, reasonably allocate the purchase price between each, as only the cost of eligible M&P buildings qualifies for the refundable ITC.   
  • The 90% test: Plan ahead and consider having separate buildings for M&P activities and non-M&P activities (e.g. storing finished goods) to ensure you meet the 90% floor space test.
• Used M&P property doesn’t qualify so ensure to keep separate records for new versus used property purchases.
• The BC M&P ITC reduces the capital cost (and accordingly the undepreciated capital cost) of the depreciable property for income tax purposes in the taxation year in which it’s received.
• Careful monitoring of how the M&P buildings, machinery, and equipment are used during the five taxation years following the claim is critical to avoid having to repay all or a portion of the credit. 

If you would like help evaluating eligibility, structuring a transaction, or understanding how this measure works with other incentives–including the proposed immediate expensing for eligible M&P buildings acquired on or after November 4, 2025–contact your local advisor or reach out to us here. 

^Disclaimer 

^{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}