8 July 2025 External T.I. 2024-1037801E5 - Ontario Made Manufacturing Investment Tax Credit

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Various questions on the application of the OMMITC and other issues related to the definition of Manufacturing and Processing (“M&P”)

1. If the property is leased to the manufacturing corporation by a holding corporation, which corporation is eligible for the OMMITC?

2. Are the front office, warehouse and other facilities included in the 90% M&P floor space requirement?

3. Is a building addition or improvement to an existing building in respect of which the OMMITC was claimed in a previous year eligible for the OMMITC in a following year?

4. Can CRA provide any further guidance on the appraisal of land for the determination of the rental cost, for purposes of computing M&P profits?

Position: 1. The qualifying corporation that owns the building.

2. Question of fact.

3. No.

4. The split between land and building should be made on a reasonable basis.

XXXXXXXXXX								2024-103780
R. Jacques-Mignault

July 8, 2025

Dear XXXXXXXXXX:

Re: Ontario Made Manufacturing Investment Tax Credit

This is in reply to your email of September 10, 2024, regarding the Ontario Made Manufacturing Investment Tax Credit (“OMMITC”). Specifically, you asked the following questions:

1. If the property is owned by a holding company (which is owned by the same shareholder of a manufacturing company), and the property is leased to the manufacturing company by the holding company, which company is eligible for this tax credit (when all eligibility criteria are met)?

2. 90% of the square footage of the property must be used for manufacturing or processing purposes. Can the front office area be included in the 90% floor space calculation? The front office is used for management (for warehouse, operations, etc.) as well as for quality and assurance and the sales team. Additionally, if some of the property is used as a warehouse for purchased inventory, will that space count towards the 90% floor space requirement?

3. Please also confirm if a building improvement, which is recorded in Class 1 for capital cost allowance purposes, is eligible for this tax credit.

4. For the purpose of computing manufacturing and processing profits, the cost of capital is discussed in Income Tax Folio S4-F15-C1, Manufacturing and Processing (“M&P Folio”), in paragraph 1.29 and subsequent paragraphs. Is there a specific guide on how to determine the value of the land when the property rented includes land and buildings?

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The OMMITC is a 10% refundable corporate income tax credit for qualifying corporations on eligible expenditures in buildings, machinery and equipment for use in manufacturing or processing in Ontario. A qualifying corporation could receive a tax credit of up to $2 million per year. The Government of Ontario has proposed enhancements of the OMMITC which, if passed, propose to temporarily expand the OMMITC for eligible investments that become available for use on or after May 15, 2025. These proposals have not yet become law; therefore our comments are based on current legislation.

Section 97.2 of the Ontario Taxation Act (2007) (“TA”) provides the rules and definitions with respect to the OMMITC. Generally, the OMMITC is available for “qualifying corporations” making “eligible expenditures” to acquire “eligible property.”

As you confirmed that the property mentioned in your questions was a building, we will limit our comments to the eligibility of buildings for purposes of the OMMITC.

Pursuant to subsection 97.2(4) of the TA, an expenditure is an eligible expenditure if, inter alia, the expenditure is incurred by the qualifying corporation in respect of the acquisition of eligible property, as defined in subsection 97.2(17) of the TA. A property that is a building, or part of a building, and meets several other criteria, may be an eligible property. Additionally, when the expenditure is a building, or a part of a building, it must have been incurred in the taxation year or a previous taxation year.

In order to qualify as an eligible property pursuant to subsection 97.2(17) of the TA, a building, or part of a building, must be located in Ontario, not be excluded property, and be considered to have become available for use by the qualifying corporation in the taxation year and on or after March 23, 2023. Additionally, the building, or part of a building, must be capital property and included in Class 1 of Schedule II of the federal Income Tax Regulations (“Regulations”) to which paragraph 1100(1)(a.1) of the Regulations applies to be in a separate prescribed class as a result of an election made under subsection 1101(5b.1) of the Regulations.

As required by subsection 1101(5b.1), buildings falling within this category are “eligible non-residential buildings,” which are defined in subsection 1104(2) as follows:

“(…) a taxpayer’s building (other than a building that was used, or acquired for use, by any person or partnership before March 19, 2007) that is located in Canada, that is included in Class 1 in Schedule II and that is acquired by the taxpayer on or after March 19, 2007 to be used by the taxpayer, or a lessee of the taxpayer, for a non-residential use.”

Buildings in Class 1 to which paragraph 1100(1)(a.1) of the Regulations applies are eligible for an additional 6% capital cost allowance (in addition to the Class 1 4% allowance) for federal tax purposes. In order to be eligible for the additional 6% allowance, at least 90% of the floor space of the building must be used at the end of the corporation’s tax year for manufacturing or processing in Canada [in Ontario to claim the OMMITC] of goods for sale or lease.

Question 1

In order for a qualifying corporation to claim the OMMITC it must, among other things, acquire an eligible property, as defined above. Also, the building should not be excluded property, as defined under paragraph 4 of subsection 97.2(17) of the TA. The definition of excluded property includes, among other things:

“(a) property that was owned, at any time, by a person or partnership with which the qualifying corporation did not deal at arm’s length at the time the property was acquired,

(b) property that the qualifying corporation or a corporation associated with the qualifying corporation held a leasehold interest in at any time before the acquisition of the property,

(c) property that was acquired from a person or partnership that has a right or option to acquire or lease all or part of the property at any time,

(d) property in respect of which, at the time it was acquired, the qualifying corporation granted any other person or partnership a right or option to acquire,

(e) property included in Class 1 of Schedule II to the Federal regulations as a result of an election made under subsection 1103(1) of those regulations,

(f) property that is leased to a lessee that is exempt from tax under section 149 of the Federal Act, or

(…)”

Therefore, provided all conditions are met and the building is not considered an excluded property, the qualifying corporation which acquired and owns the building would be entitled to claim the OMMITC in respect of its eligible property.

Question 2

As mentioned, one of the requirements of paragraph 1100(1)(a.1) of the Regulations is that 90% of the floor space of the building must be used at the end of the corporation’s tax year for manufacturing or processing in Canada of goods for sale or lease.

You specifically asked whether the front office used for management (warehouse, operations, etc.), quality and assurance, and the sales team, and also whether the warehouse containing purchased inventory, would count in the 90% manufacturing or processing floor space.

It is a question of fact whether 90% of the floor space of the building is used at the end of the corporation’s tax year for manufacturing or processing. However, provided that the facilities are used by the personnel engaged in manufacturing or processing activities, such as quality and assurance of the manufactured goods, the floor area of these facilities may be considered to be used for manufacturing or processing of goods for sale or lease.

Similarly, although each case is unique, if the nature of the activities carried out in the office are related to the personnel engaged in the manufacturing or processing of goods for sale or lease, this floor area may also be considered to be similarly used.

Please note however that sales, distribution and administration are generally not considered to be manufacturing or processing.

Also, although it is a question of fact in any specific case, a reasonable space allocated to receiving and storing of raw materials used for the manufacturing or processing activities may be included in the 90% floor space used for manufacturing or processing. However, a warehouse used solely for storing materials that are not used in manufacturing or processing activities would not qualify.

Question 3

We understand that your intent is to claim the OMMITC in respect of the building in the year of the acquisition of the building (herein after referred to as the original building) and in respect of an improvement made to the original building in the following year.

As mentioned, and provided all other conditions are met, a qualifying corporation may claim the OMMITC for a taxation year in respect of their eligible expenditures in a taxation year. Eligible expenditures must, inter alia, be incurred in respect of the acquisition of eligible property.

For capital cost allowances purposes, it is the Canada Revenue Agency’s position that an addition or alteration to a property is generally not a separate property but rather forms part of the capital cost of the original property. Similarly, we would generally not consider an addition or alteration to an eligible property to be a separate eligible property for purposes of the OMMITC.

The definition of eligible expenditure in paragraph 97.2(4)(d) of the TA specifically excludes an expenditure in respect of an eligible property for which the OMMITC has been claimed by the qualifying corporation in a previous year or by a corporation associated with the qualifying corporation in any year. Therefore, where the OMMITC has been claimed in respect of a building for the year it was originally acquired, improvements made in a subsequent year would not be considered an eligible expenditure. As such, no OMMITC would be available in respect of the acquisition of the improvements.

However, in certain circumstances, the capital cost of an improvement or addition to a building may qualify for the OMMITC. As mentioned, in order for a building, or part of a building, to qualify as eligible property for the purpose of the OMMITC, paragraph 1100(1)(a.1) of the Regulations must apply as a result of an election made under subsection 1101(5b.1). If a corporation incurs an expenditure that is an alteration or addition to a building in respect of which a subsection 1101(5b.1) election has not been filed, subsection 1102(23) of the Regulations may be applicable. Specifically, subsection 1102(23) of the Regulations provides that:

“For the purposes of applying paragraphs 1100(1)(a.1) and (a.2) and subsection 1101(5b.1), the capital cost of an addition to or an alteration of a taxpayer’s building is deemed to be the capital cost to the taxpayer of a separate building if the building to which the addition or alteration was made is not included in a separate class under subsection 1101(5b.1).”

Accordingly, in this circumstance, where the conditions of paragraph 1100(1)(a.1) and subsection 1101(5b.1) of the Regulations have otherwise been met, a subsection 1101(5b.1) election could be filed in respect of the alteration or addition. The alteration or addition could then qualify as eligible property and an eligible expenditure for purposes of the OMMITC provided all other conditions have been met, including the floor space requirements in subsection 1102(24) and 1100(1)(a.1) of the Regulations.

However, as noted, where an election under subsection 1101(5b.1) was made in respect of the original building and the OMMITC claimed in respect of the acquisition of the building, any addition, alteration or improvement made to this building would not qualify as an eligible expenditure for the purpose of the OMMITC in a following year.

Question 4

As explained in paragraph 1.29 of the M&P Folio, where property rented includes land and buildings, the allocation of the rental should be made based on a split between land and building on some reasonable basis.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch