The Federal Budget on April 19, 2021 included a mix of short- and long-term initiatives (like the Canada Recovery Hiring Program, and additional SIF funding for bio-manufacturing, respectively). Some are extensions to existing programs, like the extension of CEWS and CERS. Others are proposals to introduce new programs like the Canada Digital Adoption Program. While many of these apply to a broad range of industries, there are some proposals that are specific to manufacturing. In addition to program enhancements, the Budget proposes tax measures to encourage businesses to increase capital investment.
Below is a summary of proposals most likely to apply to Canadian manufacturers. We recommend that Canadian manufacturers review these Budget proposals to determine which ones might apply to them.
Strengthening bio-manufacturing and life sciences sectors
The Budget proposes to provide a total of $2.2B over seven years towards growing a vibrant life sciences sector. Included in the proposal is $1B of support on a cash basis, starting in 2021-22, through the Strategic Innovation Fund (SIF) to the sector that includes bio-manufacturing. The SIF's objective is to spur innovation for a better Canada by providing funding for large projects (over $10 million in requested contribution). The SIF has two broad components:
- Business innovation and growth (streams 1 to 3)
- Encourage research & development (R&D) that accelerate technology transfer and commercialization of innovative products, processes and services,
- Facilitate the growth and expansion of firms in Canada, and
- Attract and retain large-scale investments to Canada.
- Collaborations and networks (streams 4 & 5)
- Advance industrial research, development, and technology demonstration through collaboration between the private sector, researchers, and non-profit organizations, and
- Support large-scale, national innovation ecosystems through high-impact collaborations across Canada.
The Strategic Innovation Fund was launched in 2017, to date having announced 85 projects totaling $3.4B in contributions. This additional proposed funding should enable more manufacturers to access government funding for large projects.
Canada Digital Adoption Program
This new program aims to help small and medium-sized businesses adopt new digital technologies. For manufacturing and food processing operations, this translates to funding for technology advisory expertise, plus financing options for deployment of these technologies. The Budget proposes two funding streams:
- $1.4B over four years, starting in 2021-22, through Innovation, Science & Economic Development (ISED) to provide access to skills, training, and advisory services; and to create work opportunities for young people to help businesses adopt new technology.
- $2.6B over four years, starting in 2021-22, through the Business Development Bank of Canada (BDC) to help finance technology adoption.
The program aims to help Canadian small and medium-sized businesses become more efficient, take advantage of e-commerce, and become more competitive in Canada and abroad.
Supporting business investments
The Budget proposes to allow Canadian Controlled Private Corporations (CCPCs) to immediately expense eligible acquisitions for tax purposes, up to a maximum amount of $1.5 million per taxation year. This change will apply for eligible depreciable property acquired on or after April 19, 2021 and that becomes available for use prior to 2024. The $1.5 million limit must be shared among associated members of a group of CCPCs and will be prorated for short taxation years. Eligible property for this measure will not include assets with longer depreciation periods that is property in CCA Classes 1 to 6, 14.1, 17, 47, 49, and 51. This measure should provide assistance for CCPCs to make capital investments to grow their businesses.
The Budget proposes to provide $250M over three years on a cash basis, starting in 2021-22, for regional development agencies to deliver an Aerospace Regional Recovery Initiative. The initiative is targeted at small and medium-sized organizations to encourage investment to improve productivity, strengthen commercialization, and ‘greening’ operations and products.
In addition, $1.7B over seven years has been targeted to the aerospace industry through the Strategic Innovation Fund.
The programs aim to help position Canada’s aerospace sector once restrictions on travel are lifted and the industry begins to recover.
The Budget proposes to provide an additional $60M over two years, starting in 2021-22, to the Innovation Superclusters Initiative. Next Generation Manufacturing Canada (NGen) is one of Canada’s five Superclusters, providing funding to manufacturers through several initiatives like manufacturing superclusters, challenge programs, cluster building, and pilot projects.
Superclusters are designed to encourage industry leaders, small and medium-sized organizations, and post-secondary institutions to collaborate on large-scale projects in order to speed up growth in some of Canada's most promising industries, including advanced manufacturing.
Zero-emission technology manufacturing
The Budget proposes to temporarily reduce corporate income tax rates for qualifying companies involved in zero-emission technology manufacturing or processing activities. The new corporate tax rate will be 7.5% where that income would otherwise be taxed at the 15% general corporate tax rate, and 4.5% where that income would otherwise be taxed at the 9% small business tax rate. The reduced tax rates will apply to taxation years that begin after 2021 and will gradually start to be phased out in taxation years that begin in 2029, becoming fully phased out for taxation years that begin after 2031.
Taxpayers that have income subject to both the general and small business tax rates will be able to choose to have their eligible income taxed at either of the reduced rates of 4.5% or 7.5%. The amount of income taxed at 4.5%, plus the amount of income taxed at the small business rate of 9% cannot exceed the business limit.
Clean energy equipment
For manufacturers looking to invest in new equipment, the Budget proposes to expand the assets included in capital cost allowance (CCA) classes 43.1 and 43.2 that allow for accelerated tax deductions to support investment in clean technologies. This proposal is applicable to qualifying property that is acquired and becomes available for use on or after April 19, 2021.
Training and jobs
The Budget introduced several proposals related to training, hiring and apprenticeships:
- $960M over three years for Sectoral Workforce Solutions Program to deliver training relevant for SMEs and their employees, and help SMEs recruit and retain diverse and inclusive workforce
- $470M over three years for Apprenticeship Service for Red Seal trades, $5K for all first-year apprenticeship opportunities, $10K if an apprentice is a member of an underrepresented community
- $250M over three years to scale up industry-led, third-party delivered training to upskill and redeploy workers
The Budget announced the government's intention to consult on Canadian transfer pricing rules given recent Canadian court decisions on transfer pricing matters. The government believes that, without reform, shortcomings in the current transfer pricing rules can encourage the inappropriate shifting of corporate income out of Canada. A consultation paper is expected to be released in the coming months. Any changes to the rules may impact Canadian manufacturers with foreign operations.
International tax measures
The Budget contains international tax proposals related to interest deductibility and hybrid mismatch arrangements that can impact manufacturers. You can review the details of those changes here.
COVID-19 support programs
The Budget proposed changes and extensions to Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS), and introduction of Canada Recovery Hiring Program (CRHP). You can review the details of those changes here.
For more information, please contact:
David Linton, Partner, National Manufacturing & Distribution Industry Leader
Craig Mulcahy, Partner, National Government Incentives Tax Practice Leader
Paul Boucher, Partner, Special Advisory Services Manufacturing Industry Team Leader
Harry Chana, Partner, International Tax Practice Leader and Transaction Tax Leader
Angeline Chandra, Partner, Transfer Pricing Practice Leader