Manufacturing and processing profits deduction and zero-emission technology manufacturing deduction

Who is eligible?

• Corporations involved in manufacturing or processing goods in Canada for sale or lease
• Corporations engaged in manufacturing of energy conversion equipment (e.g., solar, wind, water, and geothermal equipment)
• Corporations manufacturing air-source heat pumps for space or water heating
• Corporations involved in zero-emission vehicle manufacturing, including vehicle, battery, and charging station manufacturing
• Corporations conducting nuclear energy equipment manufacturing, nuclear fuel processing or recycling, or manufacturing of nuclear fuel rods (for tax years starting after 2023)

Who is not eligible

• Companies primarily engaged in farming, fishing, logging, or construction.
• Businesses involved in operating oil or gas wells or extracting petroleum or natural gas.
• Corporations extracting minerals or processing ore and producing industrial minerals.
• Companies carrying on any active business activities outside Canada during the year.

Eligible geographic areas

• Corporations operating in Canada

• Step 1: Determine EligibilityAssess your corporation's gross revenue and activities to confirm qualification for the manufacturing and processing profits deduction or zero-emission technology manufacturing deduction.
• Ensure your corporation conducts eligible manufacturing or processing activities in Canada and meets the revenue threshold.
• Step 2: Gather Financial and Business InformationCollect detailed financial records reflecting your corporation's adjusted business income and activity breakdown.
• Obtain documentation on labour and capital costs related to manufacturing and processing, or zero-emission technology manufacturing if applicable.
• Step 3: Complete Schedule 27Download Schedule 27: Calculation of Canadian Manufacturing and Processing Profits Deduction from the Canada Revenue Agency (CRA) website.
• For small manufacturing corporations, fill out Part 1; for others, complete Part 2 as outlined in the instructions.
• If engaged in electricity or steam production, complete Parts 10 to 13. If involved in zero-emission technology manufacturing, fill out Parts 14 to 17.
• Follow the instructions provided in Schedule 27 to calculate the respective deductions.
• Step 4: Enter the Deductions in Tax ReturnTransfer the calculated deduction amounts from Part 9 of Schedule 27 to line 616 of your T2 Corporation Income Tax Return.
• Step 5: Submit Tax Return and Supporting SchedulesFile your completed T2 Corporation Income Tax Return along with Schedule 27 and any required supporting documentation with the Canada Revenue Agency (CRA).
• Ensure all sections of your tax return and schedules are accurate and complete before submission.

• The manufacturing and processing profits deduction (MPPD) and zero-emission technology manufacturing deduction are both calculated using Schedule 27 of the tax return.
• Different methods are available for calculating eligible profits depending on the corporation’s size and type (small manufacturing corporations vs. others), as outlined in Schedule 27.
• The temporary reduced tax rates for zero-emission technology manufacturers will gradually be phased out from 2032 and completely ended for tax years beginning after 2034.
• Definitions of eligible manufacturing activities and exclusions are specifically set out in relevant subsections of the Income Tax Act (125.1(3) and 125.2(2)).