Accelerated investment incentive and immediate expensing rules
FES 2024 proposes to reinstate and extend the accelerated investment incentive and immediate expensing rules for an additional three years until 2030. These measures are currently set to be fully eliminated after 2027.
The accelerated investment incentive provides an enhanced first-year capital cost allowance for most depreciable property. The FES proposes to fully reinstate the incentive for qualifying property acquired on or after January 1, 2025 and becomes available for use before 2030. This would allow 150% of the normal capital cost allowance rate to be claimed. The incentive would phase out starting in 2030 and be fully eliminated for property that becomes available for use after 2033. This proposal doesn’t include an adjustment to the currently enacted rules, which provide for claiming capital cost allowance at 100% of its normal rate for acquisitions in 2024.
FES 2024 also proposes to fully reinstate immediate expensing for manufacturing and processing machinery and equipment, clean energy generation and conservation equipment and zero-emission vehicles acquired on or after January 1, 2025, and becomes available for use before 2030. These measures would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033. This proposal doesn’t include an adjustment to the currently enacted rules which provide for immediately expensing 75% of the cost of certain eligible capital property purchased in 2024.
SR&ED tax incentives
FES 2024 broadens the scope of the scientific research and experimental development (SR&ED) tax incentives for eligible Canadian public corporations and CCPCs.
FES 2024 allows eligible businesses to claim more under the incentive by increasing expenditure limits to $4.5 million (from $3 million). FES 2024 also makes SR&ED incentives available to more corporations by raising the thresholds at which taxable capital decreases the availability of the refundable credits. FES 2024 states that the availability of the refundable credits is now reduced where corporations have taxable capital of $15 million to $75 million (from $10 million to $50 million).
FES 2024 also allows eligible Canadian public corporations to benefit from the enhanced refundable credit, which was previously only available to CCPCs subject to certain conditions.
A Canadian public corporation must meet the following criteria to be eligible:
- The corporation must be resident in Canada, and must meet one of the following criteria:
- Have a class of shares listed on a designated stock exchange,
- Have elected to be a public corporation, or
- Have been designated by the Minister of National Revenue as a public corporation, and
- The corporation must not be controlled directly or indirectly in any manner whatever by one or more non-resident persons.
A public corporation’s access to the expenditure limit will be reduced where the average gross revenue over the preceding three years is between $15 million and $75 million, considering consolidated gross revenue where consolidated statements are prepared. CCPCs would have the option to elect to have their expenditure limit reduced by gross revenues instead of their taxable capital. Members of a corporate group for financial reporting purposes would share the SR&ED expenditure limit.
FES 2024 will also allow corporations to claim capital expenditures again under the SR&ED program.
These enhancements to the SR&ED program will be effective for tax years that begin on or after December 16, 2024.
FES 2024 further announces plans to introduce a patent box regime—a lower tax rate on income derived from patents or intellectual property. More details on administration and updates to qualified expenses will also be announced in Budget 2025.
NPO reporting requirements
FES 2024 introduces several changes so that more non-profit organizations (NPOs) will be subject to reporting requirements.
Specifically, FES 2024 proposes that NPOs with total gross revenues over $50,000 will now be required to file an annual information return. Currently, an NPO is only required to file an annual information return if:
- The total of all passive income in the fiscal period exceeds $10,000
- The organization’s total assets at the end of the previous fiscal period exceeded $200,000, or
- An information return was required to be filed by the organization for a preceding fiscal period.
In addition, FES 2024 announces that NPOs that don’t meet the thresholds for filing the annual information return, must file a new short-form return containing basic information about the organization.
This measure applies to 2026 and subsequent tax years.
EV supply chain investment tax credit
FES 2024 announces the design and implementation details for the EV supply chain investment tax credit. It’s a 10% refundable credit for certain taxable Canadian corporations that acquire property between 2024 and 2032 (with a 5% credit proposed for property acquired in 2033 or 2034). These corporations must meet certain acquisition thresholds for buildings and structures (including component parts) in the three areas being:
- EV assembly
- EV battery production, and
- Cathode active material production.
In order to be eligible for the credit, a corporation (or group of related corporations) would have to either acquire at least $100 million of eligible property in each of the three above areas, or acquire at least $100 million of eligible property in two of the areas and own a qualifying investment in a corporation which acquires at least $100 million of eligible property in the third area.
This credit was initially proposed in Budget 2024.
Clean electricity investment tax credit
FES 2024 provides further details on the clean electricity investment tax credit. This is a 15% refundable credit for certain organizations that acquire eligible investments in certain qualifying equipment.
FES 2024 provides additional conditions that a provincial or territorial government must meet to be considered an eligible jurisdiction so crown corporations can access the tax credit for investments.
FES 2024 also proposes to include the Canada Infrastructure Bank as an eligible entity for this credit. This credit was first announced in Budget 2023 and expanded on in Budget 2024.
Clean hydrogen investment tax credit
FES 2024 expands the eligibility of the clean hydrogen investment tax credit to include methane pyrolysis as an eligible production pathway.
The Clean Hydrogen investment tax credit is a 15%, 25%, or 40% refundable tax credit and is available to businesses for purchases and installation of eligible equipment used in the production of hydrogen. The current production pathways included hydrogen produced from the electrolysis of water or from the reforming or partial oxidation of natural gas or other eligible hydrocarbons. The tax credit was introduced in Fall Economic Statement 2022 and further expanded in Budget 2023.
This expanded eligibility applies to property acquired on or after December 16, 2024.
