Line 616 - Manufacturing and processing profits deduction and zero-emission technology manufacturing deduction

Line 616 - Manufacturing and processing profits deduction and zero-emission technology manufacturing deduction

Corporations that derive at least 10% of their gross revenue for the year from manufacturing or processing goods in Canada for sale or lease can claim the manufacturing and processing profits deduction (MPPD). The MPPD reduces Part I tax otherwise payable.

The MPPD applies to the part of taxable income that represents Canadian manufacturing and processing profits. Calculate the MPPD at the rate of 13% on income that is not eligible for the small business deduction (SBD).

A temporary measure reduces the corporate tax rates for manufacturers of qualified zero-emission technology for tax years starting after 2021.

Income that would otherwise be subject to the 15% general corporate rate is now taxed at a 7.5% rate. Income that would otherwise be taxed at the 9% small-business rate is now taxed at a 4.5% rate.

The temporary measure has been extended by three years. The reduced rates will be gradually phased out starting in tax years that begin in 2032 and fully phased out for tax years that begin after 2034, as follows:

Reduced tax rates for zero-emission technology
Tax year start	Small business rate	Other rate
2022 to 2031	4.5%	7.5%
2032	5.625%	9.375%
2033	6.75%	11.25%
2034	7.875%	13.125%
2035 and later	9%	15%

At least 10% of the corporation's gross revenue from all active businesses carried on in Canada must be derived from eligible activities. Eligible activities include things such as:

• manufacturing of energy conversion equipment (for example, solar, wind, water, and geothermal equipment)

• manufacturing of air-source heat pumps used for space or water heating

• most manufacturing activities around zero-emission vehicles (for example, manufacturing of vehicles, batteries and charging stations)

• for tax years starting after 2023, the following nuclear manufacturing and processing activities:

  • manufacturing of nuclear energy equipment

  • processing or recycling of nuclear fuels and heavy water

  • manufacturing of nuclear fuel rods

Use Schedule 27, Calculation of Canadian Manufacturing and Processing Profits Deduction, to calculate the manufacturing and processing profits deduction and the zero-emission technology manufacturing deduction.

There are two ways to calculate Canadian manufacturing and processing profits: a simplified method for small manufacturing corporations, and a basic labour and capital employed in qualified activities formula for other corporations. These methods are outlined in parts 1 and 2 of Schedule 27.

Small manufacturing corporations only have to complete Part 1 of Schedule 27 and are entitled to calculate the MPPD on their entire adjusted business income. Essentially, a corporation's adjusted business income is its income from an active business it carried on in Canada that is more than its losses from similar businesses. If the corporation is involved in resource activities, it has to reduce the adjusted business income by its net resource income, its refund interest, and part of its prescribed resource loss.

Schedule 27 shows how to calculate the adjusted business income.

To qualify as a small manufacturing corporation, you have to meet all of the following requirements:

• the activities during the year were mainly manufacturing or processing

• the active business income and that of any associated Canadian corporations was not more than $200,000

• you were not engaged in any activities specifically excluded from manufacturing and processing, as defined in subsection 125.1(3), such as farming, fishing, logging, construction, operating an oil or gas well or extracting petroleum or natural gas, extracting minerals, processing ore, producing industrial minerals, and others

• you did not carry on any active business outside Canada at any time during the year

Corporations that do not qualify as small manufacturing corporations have to complete Part 2 of Schedule 27. In Part 2, you will find the basic formula for calculating Canadian manufacturing and processing profits, as well as detailed instructions on how to complete the schedule.

Corporations that produce electricity or steam for sale have to complete Parts 10 to 13 of Schedule 27.

Corporations that engage in zero-emission technology manufacturing have to complete Parts 14 to 17 of Schedule 27.

On line 616, enter the amount of the manufacturing and processing profits deduction and zero-emission technology manufacturing deduction determined in Part 9 of Schedule 27.

References
Sections 125.1 and 125.2
Regulation 5200
S4-F15-C1, Manufacturing and Processing

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