Buying or expanding a manufacturing building? New tax benefit proposed

This proposal is in addition to other Budget 2025 measures to temporarily provide immediate or accelerated tax deductions for certain types of asset purchases, which are included in Bill C‑15.  

What are the proposed changes? 

When a business acquires a capital asset, such as a building, its cost is typically deducted for tax purposes over multiple years, according to the relevant capital cost allowance (CCA) rate.  

Under the proposed temporary immediate expensing rules, the cost of eligible M&P buildings will be subject to a gradual phase-out period, as follows:

• 100% for eligible property acquired on or after November 4, 2025, and before 2030
• 75% for property acquired in 2030 or 2031
• 55% for property acquired in 2032 or 2033

After 2033, the regular CCA rules would apply. Under the regular rules, qualifying M&P buildings are eligible for a CCA rate of 4% on a declining balance basis, plus an additional 6% if you file a valid separate class election. However, in the year of purchase, you can only claim half of the available CCA (unless the accelerated investment incentive applies).  
 

What would qualify for immediate expensing? 

The Income Tax Act doesn’t define M&P; however, it provides a list of activities that would not qualify, including farming, fishing, logging, construction, and certain resource activities. Therefore, determining what qualifies as an M&P activity typically relies on CRA administrative guidance and court decisions. In addition, to be an eligible M&P building, the asset must meet the following conditions in the tax year acquired:

• The building is in Canada.  
• The building is acquired on or after November 4, 2025 (Note that earlier costs could qualify if construction straddles this date under certain conditions).
• At least 90% of the floor space must be used by the taxpayer (or lessee) for M&P activities at the end of the tax year. For building expansions, the combined floor space must meet the 90% test.
• A valid separate class election to claim the additional CCA must be filed with the taxpayer’s income tax return for the tax year.
•  If the building is used, it must not have been:
  • Transferred under a tax-free rollover  
  • Owned previously by the taxpayer or a non-arm’s length person, or    
  • Used (or acquired for use) by anyone prior to March 19, 2007.

Note the M&P building would need to be considered “available for use” in the tax year before the taxpayer can qualify for immediate expensing.  

Assessing M&P eligibility and whether a building meets the required conditions can be complex. Contact your advisor for guidance. 
 

Avoiding a recapture event

A “recapture event” occurs if a taxpayer claims immediate expensing and then the taxpayer (or lessee) starts using more than 10% of the building’s floor space for income-earning purposes other than M&P in a tax year that begins within 10 calendar years of the end of that tax year.  

If a recapture event takes place, it could result in unexpected tax consequences. In this scenario, the taxpayer must add back the extra CCA they claimed (i.e., the difference between the immediate expensing amount and the amount that would’ve been deducted under the regular CCA rules) as income in that year. This recaptured amount would then become the building’s undepreciated capital cost for CCA purposes.  

Taxpayer considerations 

Businesses planning to buy or expand an M&P building should consider these rules early. While the potential tax benefits can be substantial, determining whether a particular expenditure qualifies can be complex. 

Be mindful of these considerations when planning:  

• Timing and elections: Since the CRA won’t accept late-filed separate class elections, you will miss out on the immediate expensing (and accelerated CCA deductions) if you don’t file in time (e.g., six months after the tax year-end for corporations).  
• 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 write‑off.  
• 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.

If you would like help evaluating eligibility, structuring a transaction, or understanding how this measure works with other incentives, such as the Ontario Made Manufacturing Investment Tax Credit or the proposed British Columbia manufacturing and processing investment tax credit, 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.