Top Manufacturing Tax Credits for Canadian Businesses in 2025

These credits serve as a stimulus for economic growth, helping companies modernize operations, adopt new technologies, and improve competitiveness.

This guide explains what manufacturing tax credits are, their purpose, and who can benefit. We’ll explore key federal programs (such as the Clean Technology Manufacturing Investment Tax Credit and the Atlantic Investment Tax Credit) and major provincial programs – including the Ontario Made Manufacturing Investment Tax Credit, Quebec’s C3i investment credit, Manitoba’s MITC, Saskatchewan’s manufacturing incentives, and Newfoundland and Labrador’s investment credit. We also clarify the difference between refundable and non‑refundable tax credits, outline the eligibility criteria to qualify, and provide an overview of how to claim these credits (including the use of a manufacturing tax credit calculator and filing tips).

Our aim is to present a comprehensive yet accessible guide, so Canadian business owners can understand and leverage these incentives effectively.

What Are Manufacturing Tax Credits?

Manufacturing tax credits are government-sponsored incentives that allow businesses to reduce their taxes when they invest in certain qualifying manufacturing or processing activities. In practice, this usually means if a company spends money on eligible assets – like new manufacturing equipment or the construction/improvement of a production facility – it can claim a credit that directly lowers its tax bill. The credit is often calculated as a percentage of the investment made.

The purpose of these credits is to encourage businesses to make capital investments that they might otherwise postpone or avoid due to cost. By offering a tax break, governments help offset part of the expense of modernization, expansion, or innovation. This leads to several benefits:

• Business growth: Companies can expand production capacity or improve efficiency with less financial strain, boosting their growth prospects.

• Job creation and retention: New facilities and equipment often require hiring or upskilling employees, supporting employment in the manufacturing sector.

• Technological advancement: Credits targeted at innovative sectors (like clean technology) push businesses to adopt cutting-edge equipment and processes, keeping Canadian industry competitive.

• Regional development: Some credits are region-specific, aiming to attract investment to certain provinces or areas, which helps balance economic development across Canada.

Who can benefit? Typically, manufacturers of all sizes – from small workshops to large factories – can benefit, as long as they meet the program criteria. Both new startups investing in their first production line and established firms upgrading to the latest machinery can use tax credits to reduce costs. Certain credits are especially advantageous to small and medium-sized enterprises (SMEs) because they are refundable (providing a cash refund even if the business isn’t yet profitable). Larger corporations also benefit through sizable reductions in tax payable for their capital expenditures. Industries across the manufacturing spectrum – automotive, aerospace, food processing, textiles, clean tech, you name it – are potential beneficiaries if they invest in eligible assets.

In essence, manufacturing tax credits are a tool to lower the effective cost of investments in production capabilities. A business that knows and utilizes these credits can stretch its investment dollars further, allowing it to undertake projects that improve productivity, quality, and innovation with a bit of financial support from the government.

Refundable vs. Non-Refundable Tax Credits (Understanding the Difference)

One key concept to understand is the difference between refundable and non‑refundable tax credits. This distinction affects how and when you actually reap the benefit of a given credit:

• Refundable Tax Credits: A refundable tax credit is one that can not only reduce your tax payable to zero, but also result in a cash refund from the government if the credit amount exceeds your tax liability. In other words, if the credit brings your company’s tax bill to zero and some credit remains unused, the excess can be paid out to you. (For example, if you have a $50,000 refundable manufacturing tax credit but only $30,000 of taxes owing, the remaining $20,000 would be issued as a refund.) Refundable credits are especially beneficial for newer or smaller businesses that may not owe much tax yet due to lower profits or because they’re reinvesting heavily. Many manufacturing-related credits in Canada are fully or partially refundable. For instance, the federal Clean Technology Manufacturing credit and Ontario’s manufacturing investment credit (for Canadian-controlled private corporations) are refundable – meaning a qualifying company can get a refund check for the credit amount it can’t use to offset taxes. This provides a direct infusion of cash flow that can further support the business.

• Non-Refundable Tax Credits: A non-refundable tax credit, by contrast, can reduce your tax payable only up to zero, but any excess credit amount cannot be refunded as cash. If your credit is bigger than your tax owed, the unused portion remains unused in that year (though often it can be carried forward to use in future years, depending on the credit’s rules). Non-refundable credits still have value – they can significantly cut down taxes for profitable companies – but they require sufficient taxable income to utilize. (For instance, using the scenario above, a $50,000 non-refundable credit with only $30,000 of taxes owing would reduce the tax to zero, but the extra $20,000 would not be paid out – it could only be carried forward to offset future tax.) Some programs are non-refundable by design, or have non-refundable components. For example, a large corporation that might qualify for a provincial manufacturing credit could find that the credit only applies against taxes payable (with no refund on top of that). In these cases, if the company has a low-tax year, the credit’s immediate benefit is limited – though usually the company can carry the unused credit into a future profitable year (or sometimes back to a previous tax year) to make use of it.

To sum up, refundable = cash if credit > tax, whereas non-refundable = no cash beyond reducing tax to $0. Both types reduce your tax burden, but refundable credits offer more flexibility and immediate benefit, particularly in low-profit years. When planning your investments and claims, it’s important to know which type you’re dealing with. Refundable credits can improve project cash flow (you might budget expecting a refund), while non-refundable credits might require planning to ensure you have enough taxable income to make full use of the credit over time. Many programs targeting small businesses are refundable to maximize their usefulness, whereas incentives accessible by larger firms sometimes remain non-refundable to limit outright payouts. Knowing this difference helps in forecasting the financial impact of an investment and managing expectations when you claim the credit.

Federal Manufacturing Tax Credits in Canada

At the federal level, Canada has introduced specific tax credits to support manufacturing investments, especially those aligned with innovation and regional development. Two prominent federal credits that manufacturing businesses should know about are:

Clean Technology Manufacturing Investment Tax Credit (CTM ITC)

The federal Clean Technology Manufacturing Investment Tax Credit (CTM ITC) is a 30% refundable tax credit for businesses investing in new equipment used to manufacture clean technology or to process critical minerals in Canada. This credit is available for eligible property that becomes available for use between 2024 and 2034 (with the 30% rate gradually declining for property placed in service after 2031). The CTM ITC covers a broad range of machinery and equipment that falls under specified capital cost allowance classes – for example, equipment for producing renewable energy, electric vehicles or batteries, and processing key minerals like lithium, cobalt, and nickel. Companies claim the CTM ITC on their corporate tax returns, and because it’s refundable, even a company with low taxable income can receive the credit amount back as a refund. By offsetting 30% of capital costs, this measure significantly lowers the expense of establishing or expanding clean technology manufacturing operations in Canada.

This credit was introduced as part of Canada’s strategy to promote a cleaner economy and to compete with similar incentives in other countries (such as clean manufacturing incentives in the US). If your business is involved in building clean tech (for instance, manufacturing solar panels, energy-efficient batteries, electric vehicles, or equipment for carbon capture, etc.) or processing the critical minerals needed for these technologies, the CTM ITC can substantially reduce your investment costs. It encourages companies to set up production in Canada for the emerging green economy supply chain.

Keep in mind that the CTM ITC’s 30% rate is temporary at its highest level – any qualifying equipment available for use in 2032 or later will get a lower percentage (dropping to 20% in 2032, 10% in 2033, and 5% in 2034, before the program sunsets). So there is an incentive to invest sooner rather than later to capture the full 30% benefit. Overall, this credit is a significant boost for manufacturers in the clean technology space, effectively covering nearly one-third of eligible capital expenditures during the prime years of the program.

Atlantic Investment Tax Credit

The Atlantic Investment Tax Credit (AITC) is a federal program that offers a 10% refundable credit on the cost of new buildings, machinery, and equipment used in Atlantic Canada and certain adjacent regions. Manufacturing and processing operations in Newfoundland and Labrador, Nova Scotia, New Brunswick, Prince Edward Island (and the Gaspé region of Quebec) can benefit from this credit when they invest in eligible capital assets. The 10% credit can be claimed on a company’s federal tax return; if the credit exceeds the federal tax payable, the excess is refunded. This incentive has made it more attractive for businesses to establish or expand manufacturing facilities in the Atlantic region by effectively giving back a portion of their investment costs.

The Atlantic Investment Tax Credit has a broad scope in terms of sectors – it not only covers manufacturing and processing industries but also farming, fishing, logging, and some resource activities (though certain resource sectors like oil and gas have been phased out of the credit in recent years). For manufacturers, the key point is that if you build or acquire new manufacturing and processing equipment or construct a new production building in any of the Atlantic provinces (or specified eastern Quebec regions), you could get 10% of that cost refunded via this credit.

For example, if a Nova Scotia manufacturer purchases $1 million in new machinery for a plant, the AITC could provide a $100,000 credit. If the company’s federal tax liability is less than that in the year, the remainder is paid as a refund. This is a powerful incentive to invest in Atlantic Canada, effectively lowering project costs. It’s administered through the tax system (usually via Form T2038 or the corporate Schedule for investment tax credits). The inclusion of the Gaspé Peninsula means even certain Quebec investments (mostly in the Gaspé/Magdalen Islands area) qualify, acknowledging that region’s economic ties to Atlantic Canada.

In sum, the Atlantic Investment Tax Credit is an important federal tool for regional economic development. Manufacturers operating in, or considering expansion to, Atlantic Canada should factor this 10% credit into their investment decision-making, alongside any provincial incentives available, as it significantly improves the return on investment for capital projects in those provinces.

Provincial Manufacturing Tax Credits and Incentives in Canada

Several provinces have introduced their own manufacturing investment tax credits to complement federal incentives. Below we highlight key provincial programs (Ontario, Quebec, Manitoba, Saskatchewan, Newfoundland and Labrador). Other provinces may not have specific manufacturing tax credits, but manufacturers in those regions can still benefit from general tax measures and the federal programs discussed above.

Ontario: Ontario Made Manufacturing Investment Tax Credit (OMMITC)

Ontario’s Made Manufacturing Investment Tax Credit (OMMITC) provides a 10% refundable tax credit to qualifying companies on expenditures for manufacturing and processing (M&P) machinery, equipment, and buildings in Ontario. Eligible corporations are generally CCPCs (Canadian-controlled private corporations) with a permanent establishment in Ontario, and the credit applies to assets acquired after March 23, 2023, that are used primarily in the manufacturing or processing of goods in the province. The credit is capped at $2 million per year in credit (based on up to $20 million in qualifying investments), shared across associated companies. (Ontario has proposed increasing the credit to 15% and raising the annual limit to $3 million in the future.) Businesses claim the OMMITC on their corporate tax return, and since it is refundable, a qualifying company can receive a refund if the credit exceeds its Ontario tax payable. (Non-CCPC companies may access the credit on a non-refundable basis if new rules come into effect.)

In practical terms, the OMMITC means that if an Ontario manufacturer spends, say, $5 million on new eligible production equipment, they can get $500,000 back as a tax credit from the province. This credit directly reduces the cost of investing in Ontario-based production capacity. There are checks in place (such as ensuring the equipment is new and bought from an arm’s-length seller, and recapturing the credit if the asset is quickly sold or moved out of Ontario) to make sure the incentive serves its purpose of long-term investment in the province. Ontario also allows companies within the same corporate group to share the annual investment limit by agreement, preventing groups from sidestepping the cap.

The OMMITC, being refundable, is particularly attractive to growing manufacturing firms that are investing heavily – they can get cash back even if they don’t owe much tax. It underscores Ontario’s commitment to bolstering its manufacturing sector. Manufacturers in Ontario should definitely be factoring this credit into their capital budgeting. It essentially acts like a 10% off coupon on your factory equipment and facility upgrades. And with potential enhancements on the horizon, Ontario is signaling even stronger support for manufacturing in the coming years.

Quebec: Investment and Innovation Tax Credit (C3i)

Quebec’s Investment and Innovation Tax Credit (C3i) is a provincial refundable tax credit aimed at encouraging businesses to invest in manufacturing productivity and digital innovation. It applies to the purchase of eligible property such as new manufacturing and processing equipment, as well as computer hardware and software integrated into production. The credit rate depends on where in Quebec the investment is made: 15%, 20%, or 25% of the expenditure (higher rates for investments in economically lesser-developed regions, and 15% in major areas like Montreal). C3i is available for property acquired from March 2020 through 2029. All companies with a taxable presence in Quebec can qualify (minor exceptions aside), and the credit is fully refundable – meaning even if a company pays little tax, it will receive the credit amount in cash. Businesses claim C3i when filing their Quebec income tax return.

Quebec’s credit is noteworthy for its variable rates: it provides a bigger incentive to invest in regions of the province that need more economic stimulation (for example, a factory in a remote region might get a 25% credit, whereas one in greater Montreal gets 15%). The aim is to boost economic activity outside the big urban centers while still supporting innovation province-wide. The types of investments that qualify are broadly those that improve a company’s productivity or capacity: buying new manufacturing machinery, upgrading computers and network systems that run the production line, or investing in advanced software like ERP (enterprise resource planning) systems for operations.

A couple of conditions to note: Quebec’s C3i only applies to new property (or certain large refurbished equipment). Also, each asset has a small base amount that doesn’t qualify (approximately the first $5,000 or $12,500 of each asset’s cost is excluded from the credit calculation, acting like a deductible), ensuring very minor purchases don’t trigger credits. Additionally, while there is a very high cap on total expenditures (a group of companies can only get the credit on up to $100 million of investments over a period), that limit is so high it affects only very large corporations.

In essence, C3i is a generous program – especially if you invest outside Montreal, you could get a quarter of your equipment cost refunded. Even at 15% it’s substantial, and because it’s refundable, it’s cash in hand. Quebec manufacturers and even companies in other sectors (the credit also covers certain equipment for things like digital transformation in various industries) should be aware of C3i when planning their capital spending. It has been a key part of Quebec’s strategy to boost business investment since 2020, and the province has extended and adjusted it to continue making Quebec an attractive place to invest in modern technology and manufacturing capacity.

Manitoba: Manufacturing Investment Tax Credit (MITC)

Manitoba’s Manufacturing Investment Tax Credit (MITC) offers an 8% tax credit on the value of qualified manufacturing plant and equipment purchased for use in Manitoba. This credit is 7% refundable and 1% non-refundable, meaning most of the benefit can be paid out even if the company doesn’t owe Manitoba tax, while a small portion is used to reduce provincial tax payable. The MITC can be claimed by any corporation with manufacturing operations in Manitoba and is applied on the Manitoba corporate tax return. Unused credits can be carried forward for up to 10 years (or back 3 years) to ensure businesses can fully utilize the tax savings.

Manitoba’s program has been in place for quite some time, providing steady support to manufacturers investing in the province. If a Manitoba manufacturer buys new machinery for $1 million, the total credit would be $80,000. Of that, $70,000 could be refunded if the company’s Manitoba tax is low, and $10,000 would be applied against future Manitoba taxes. This structure (often described as “7/8 refundable”) ensures that even companies in expansion mode (plowing money into growth and not yet making high profits) get most of the incentive upfront.

Eligible property for the MITC includes new (and certain used) equipment and machinery used directly in manufacturing or processing goods in Manitoba. Notably, Manitoba also includes equipment that conserves energy or is used for renewable energy (which fall under federal CCA classes 43.1 and 43.2) as qualifying, dovetailing with clean initiatives.

For businesses, the Manitoba MITC is relatively straightforward to claim – it’s administered by the Canada Revenue Agency through the tax return (Schedule 381 on the T2). Because part of the credit is non-refundable, companies should track carryforwards if they can’t use that piece immediately. However, the majority refundable portion means you don’t leave much on the table. This credit directly reduces the capital cost of setting up or upgrading a production line in Manitoba, so manufacturers there should incorporate it into their financial planning for any significant equipment purchases.

Saskatchewan: Manufacturing and Processing Incentives

Saskatchewan supports manufacturers through multiple tax measures rather than a single uniform credit. The province provides a Manufacturing and Processing (M&P) Profits Tax Reduction, which effectively lowers the provincial corporate tax rate by up to 2% on income from manufacturing and processing operations. In addition, Saskatchewan has a Manufacturing and Processing Investment Tax Credit that essentially refunds the provincial sales tax on capital equipment: it offers roughly a 6% refundable credit on the cost of new manufacturing machinery and also a credit for used equipment (by refunding PST paid) for assets used in Saskatchewan. Finally, an M&P Exporter Tax Incentive gives a non-refundable tax credit of $3,000 for each new full-time job created beyond a company’s 2014 baseline, for manufacturers that export a significant portion of their production. These incentives combined make Saskatchewan an attractive place to expand manufacturing by lowering the tax burden on both profits and new investments.

In practice, the 2% profits tax reduction means if a manufacturer’s general corporate tax rate in Saskatchewan would be 12%, it might only pay 10% on its manufacturing income – directly boosting after-tax profits. This benefit is automatically calculated through the corporate tax return (via Schedule 404) if you have eligible manufacturing profits.

For capital investments, Saskatchewan’s policy has been to offset the cost of their provincial sales tax (PST) on machinery. Saskatchewan’s PST is 6%, so by providing a 6% credit on new equipment, the province is effectively reimbursing the PST, ensuring that local manufacturers aren’t at a tax disadvantage when investing. New equipment credits are claimed through the federal tax return system (Schedule 402) and are fully refundable – you get that 6% back regardless of tax payable. For used equipment, since PST is also payable on used machinery, Saskatchewan allows companies to apply for a refund credit from the provincial Ministry of Finance, recognizing those investments too (though that process is separate from the tax return).

The $3,000 per-job exporter incentive is a more specialized measure. To use it, a company must show an increase in manufacturing-related full-time employees above the number they had in 2014, and it must be an “exporter” (at least 25% of sales are out-of-province). If a manufacturer qualifies, it can claim $3,000 for each net new job as a credit on its tax return (Schedule 403). While non-refundable, it can reduce provincial tax owing, and unused amounts can carry forward 5 years. This essentially rewards businesses for growing their workforce in Saskatchewan’s manufacturing sector, especially those tapping into broader markets.

Overall, Saskatchewan’s approach is a mix of tax rate reduction and targeted credits. The combination can yield substantial benefits: a growing manufacturer could pay less tax on its profits, get a refund on the PST for new equipment, and even earn credits for hiring more people. Companies investing in Saskatchewan or comparing it to other provinces should take these into account as part of the cost-benefit analysis of locating operations there.

Newfoundland and Labrador: Manufacturing & Processing Investment Tax Credit

Newfoundland and Labrador introduced a Manufacturing and Processing Investment Tax Credit in 2022 to stimulate capital spending in its key industries. This provincial credit is 10% of the capital cost of eligible assets (such as new manufacturing equipment or machinery used in farming, fishing, or forestry) that are purchased for use in the province. For Canadian-controlled private corporations (CCPCs), 40% of the credit is refundable, while the remainder is non-refundable and can reduce NL income tax. Unused credits can be carried back 3 years or forward 20 years. Companies claim this credit on their NL corporate tax schedules alongside their federal return. Notably, this credit can be claimed in addition to the federal Atlantic ITC, enhancing the incentive to invest in Newfoundland and Labrador.

In effect, an investment in a Newfoundland factory or processing facility can earn both a 10% federal credit and a 10% provincial credit – a combined 20% benefit, which is a significant reduction in net cost. Newfoundland and Labrador’s credit is somewhat unique in that it’s only partially refundable. For example, if a qualifying CCPC had a $100,000 credit from a big equipment purchase, $40,000 could be refunded and $60,000 applied to lower provincial taxes (with carryforwards if necessary). Non-CCPCs (like large public companies) can still claim the 10% credit but only against taxes (with carryover provisions), since the refundable portion is a perk reserved for CCPCs to help smaller firms.

This credit covers a range of sectors integral to NL’s economy – beyond general manufacturing, it explicitly includes fishery, farming, and forestry equipment, acknowledging those as processing industries important to the province. The credit’s introduction in 2022 came as part of efforts to spur economic growth and diversification in Newfoundland and Labrador. It is administered by CRA through the tax return, similar to other provincial credits.

For businesses, the message is clear: if you’re investing in production capabilities in Newfoundland and Labrador, there’s a 10% provincial tax credit waiting to be utilized, on top of any federal credits. This substantially improves project economics in the province. It’s a compelling factor for local companies to reinvest at home, and for outside investors looking at Atlantic Canada – NL now has one of the richer combined tax incentive packages (federal + provincial) for manufacturing investment.

Eligibility Criteria and Qualifications

As a general rule, to be eligible for these credits, your business must be engaged in manufacturing or processing and invest in qualifying assets used in the relevant jurisdiction. Key eligibility factors include:

• Business type and location: Typically, the company must be a taxable corporation (often a Canadian-controlled private corporation for full benefits) with a permanent establishment in the jurisdiction offering the credit. The manufacturing or processing activities should take place in that province or region.

• Eligible expenditures: The investment must be in approved assets, usually new manufacturing equipment, machinery, or buildings used for production. Some programs also count related technology (e.g., software or clean energy equipment). Land and vehicles are usually excluded. The purchase must occur within the program’s effective dates.

• Usage requirements: The asset generally needs to be used primarily in manufacturing or processing and remain in use for a minimum period (for example, at least two years in the province) to retain the credit without clawbacks.

• Compliance: You must file the required tax credit schedules or applications on time as part of your tax return. Maintain supporting documents (invoices, proof of use) in case of audit. Also, you cannot claim multiple credits for the same expenditure under different programs (no “double dipping”).

Each credit program has its own detailed definitions (for instance, what qualifies as manufacturing, what classes of property are eligible, etc.), so it’s important to consult the specific criteria. Generally, if you are a manufacturer buying new production equipment and you pay tax in the region, you stand a good chance of qualifying for something. But nuances exist – e.g., some credits exclude large public companies or have special rules for certain industries.

Tip: Before making a big investment, check the latest guidelines for any credit you plan to claim. Sometimes a short conversation with a tax advisor or a review of government documentation can clarify eligibility conditions that might affect how you proceed (for example, whether leasing equipment vs. buying it outright affects the credit, or if there’s a registration required before purchase). By planning ahead, you can ensure your investment is structured to maximize the credits you qualify for.

How to Claim and File for Manufacturing Tax Credits

Claiming a manufacturing tax credit involves a few key steps from calculation to filing. Here’s a simplified guide:

1. Identify eligible investments: Determine which purchases or projects qualify for federal or provincial manufacturing credits. For example, list all new manufacturing equipment, machinery, or facility upgrades that fall under a credit program.

2. Calculate your credits: For each qualifying expenditure, calculate the credit amount (multiply the eligible cost by the credit rate). You can use an online manufacturing tax credit calculator if available, or simply apply the percentage from the program (e.g., 10% for a provincial credit). Be mindful of any program limits (such as maximum expenditures or partial refund rules).

3. Complete the required forms: Fill out the specific tax credit schedule or form for the credit when preparing your income tax return. For a corporation, this means attaching the appropriate federal or provincial schedule (for example, Ontario’s Schedule 572 for the OMMITC, or the federal form for the Atlantic ITC) to your T2 corporate return. Ensure all information (like asset costs and in-service dates) is entered correctly.

4. File and claim the credit: Submit your tax return with the credit forms by your filing deadline. The credit will be applied to reduce your tax liability. If the credit is refundable and exceeds the tax you owe, you’ll receive the balance as a refund. If it’s non-refundable, any excess credit can often be carried forward to future years.

5. Keep documentation: Maintain supporting documents such as invoices, purchase agreements, and records of how the asset is used in manufacturing. While these don’t need to be filed with the return, they should be available if the CRA or provincial tax authority reviews your claim.

By following these steps, you can smoothly integrate the credit claims into your regular tax filing process. Most credits are claimed as part of your annual tax return, making it convenient to recover some of your investment costs through tax savings or refunds. If you’re unsure about any step, consider consulting a professional accountant or the specific government guidance for the credit – provincial finance ministries and the CRA often publish detailed instructions for these forms.

One more thing: pay attention to deadlines and carryover options. Some credits require you to claim them within a certain period (for instance, within one year of the tax return due date for the year of the investment, if not claimed on the original return). Also, if you have more credit than you can use, make sure to track carryforwards on your books so you remember to use them in future years. Tax software and professionals can help ensure this is done right.

Conclusion

Canadian businesses that invest in manufacturing can significantly benefit from the array of tax credits available. These programs – at both the federal and provincial level – help reduce the net cost of purchasing equipment, building facilities, and adopting innovative technologies. Understanding the nuances of each credit (and whether it’s refundable or non-refundable) allows companies to plan their investments strategically and maximize their savings. By taking advantage of manufacturing tax credits, companies can boost their cash flow, improve their return on investment, and reinvest in further growth. In short, these tax incentives are a valuable support for Canada’s manufacturing sector, enabling businesses to innovate and expand while keeping costs in check. Staying up-to-date with new or enhanced tax credit programs is advisable, as governments often adjust incentives to further support manufacturing innovation and growth. With proactive planning, your company can make the most of these credits and reinvest the savings into future success.