The Ultimate Guide to Industrial Manufacturing Taxes and Accounting in Canada
Industrial manufacturing taxes Canada require careful handling to keep compliance and optimize financial performance, and Gondaliya CPA offers clear guidance on accounting and tax management tailored for industrial manufacturers. Their expertise covers key tax credits, deductions, and reporting standards specific to manufacturing taxes in Canada, helping businesses manage their obligations effectively.
Quick Summary
Four things carry most of the tax position on a plant floor:
- Machinery is expensed at 100% in the first year under the incentive reinstated by Bill C-15.
- The M&P deduction is section 125.1, and federally it now matches the general rate. Its value is Ontario’s 10% manufacturing rate.
- Overhead belongs in work in progress until the goods are sold, not in expenses as incurred.
- SR&ED doubled: a $6 million enhanced limit, with capital equipment eligible again.
Reading time: 34 minutes.
Table of Contents
The Numbers That Matter
This article covers incorporated Canadian industrial manufacturers, including machine shops, fabricators, moulders, equipment builders and contract manufacturers, with Ontario and Toronto context, and reflects rules current to 26 September 2026. Customs, trade remedies and product regulatory approvals are outside its scope. Capital cost allowance classification depends on the specific asset and its use, so confirm yours before filing. This is educational information only and not tax or legal advice.
Overview of Industrial Manufacturing Taxes and Accounting in Canada
The Tax Environment and Key Credits
Overview
Industrial Manufacturing Tax Environment in Canada
Manufacturers face federal and provincial corporate tax, GST/HST, payroll, and a set of sector-specific measures: the manufacturing rate, accelerated capital cost allowance, SR&ED, and provincial investment credits.
Key Tax Credits and Deductions for Manufacturers
Risk Warning: the manufacturing deduction is section 125.1, not 125. Section 125 is the small business deduction. The manufacturing and processing profits deduction lives in 125.1, and it applies to income above the small business limit.
Federally it produces the same 15% rate as general business income, so there is no federal saving to plan around. Its real value is provincial: Ontario taxes eligible manufacturing income at 10% rather than the 11.5% general rate. Planning a structure around a 10% federal deduction that does not exist wastes the exercise.
- M&P profits deduction, section 125.1, a rate reduction on manufacturing income.
- Ontario Made Manufacturing Investment Tax Credit, 15% refundable on up to $20 million of investment.
- SR&ED, 35% refundable for a CCPC up to the expenditure limit.
- Apprenticeship Job Creation Tax Credit, 10% of eligible wages to $2,000 per apprentice.
Common Tax Compliance Requirements for Industrial Manufacturers
| Obligation | Timing | Note |
|---|---|---|
| T2 corporate return | Six months after fiscal year-end | Balance due two months after, three for an eligible CCPC |
| Corporate instalments | Monthly under section 157 | Quarterly only for an eligible CCPC |
| Payroll remittance | 15th of the following month for a regular remitter | Accelerated above $25,000 average monthly withholding |
| GST/HST return | Annual at $1.5 million or less; quarterly to $6 million; monthly above | Annual returns due three months after year-end |
| SR&ED claim | 18 months after year-end | Statutory, with no extensions |
Unique Accounting Challenges in Industrial Manufacturing
- Work in progress valuation: materials, direct labour and factory overhead at the stage of completion.
- Long-running orders: matching revenue to work performed rather than to the invoice schedule.
- Scrap revenue: income when realised, not netted quietly against materials.
- Warranty provisions: an accounting liability, but not deductible until incurred.
Gondaliya CPA’s Approach to Industrial Manufacturing Taxes and Accounting
We work with machine shops, fabricators, moulders, equipment builders and contract manufacturers across Ontario, using QuickBooks and Xero alongside job costing so the numbers that reach the return come from the shop floor rather than from a year-end estimate.
Specialized Accounting and Tax Services for Industrial Manufacturers
Filing, Planning and Payroll
Compliance
Corporate Tax Filing and Compliance for Manufacturing Businesses
- File the T2 within six months of fiscal year-end; late filing costs 5% plus 1% per complete month under 162(1).
- Report profit under section 9, measured on work performed rather than amounts billed.
- Keep direct labour and factory overhead in inventory until the goods are sold.
- Retain job sheets, payroll data and invoices six years from the end of the taxation year under 230(4).
Tax Planning Strategies Tailored to Industrial Manufacturing
Planning in this sector is mostly timing: which costs sit in inventory, which class an asset lands in, and when an asset becomes available for use. On a $500,000 machine, classification and first-year treatment move more money than any structural change.
A fabricator bought a $500,000 press brake, including freight and installation. The prior treatment had it in Class 8 at 20% with the half-year rule, giving $50,000 in year one.
As manufacturing machinery it belongs in Class 43, and under the reinstated incentive the first-year deduction was the full $500,000. Nothing about the purchase changed, only the class and the first-year rule. The Ontario credit on the same asset was claimed separately. Figures changed for privacy.
Manufacturing-Specific Bookkeeping and Payroll Management
- Shift premiums, overtime and safety allowances run through payroll and appear on the T4.
- Separate production wages, which are absorbed into inventory, from administrative wages, which are period costs.
- Employer costs for 2026: CPP at 5.95% between $3,500 and $74,600, CPP2 at 4% to $85,000, EI at 1.63% to $68,900 with the employer at 1.4 times.
- Late remittance costs 3% to 10% under 227(9), and unremitted amounts follow the directors personally under 227.1.
Handling Capital Equipment Depreciation and Capital Cost Allowance (CCA)
Risk Warning: three of the classes commonly quoted for manufacturers are wrong. Class 53 is manufacturing machinery at 50%, not 30%, and it is closed to acquisitions after 2025; that machinery now goes to Class 43 at 30%. Class 43.1 and 43.2 are clean energy equipment, not general M&P machinery. And the half-year rule applies to Class 1 buildings like anything else, so describing Class 1 as exempt from it is wrong twice over, because the rule is suspended for eligible property acquired after 2024 in any case.
| Asset | Class | Base rate | 2026 first-year treatment |
|---|---|---|---|
| M&P machinery acquired before 2026 | Class 53 | 50% | 100% where available for use before 2030 |
| M&P machinery acquired after 2025 | Class 43 | 30% | 100% where available for use before 2030 |
| Dies, jigs, moulds and tools under $500 | Class 12 | 100% | Full deduction |
| General equipment and tools over $500 | Class 8 | 20% | Full 20%, half-year rule suspended |
| Manufacturing building | Class 1 | 4%, or 10% with the M&P additional allowance | Half-year rule suspended |
| Clean energy generation equipment | Class 43.1 or 43.2 | 30% or 50% | 100% first-year deduction reinstated |
| Leasehold improvements | Class 13 | Straight line | Over the lease term plus one renewal |
Freight and installation form part of the capital cost, so keep them itemised on the invoice rather than posting them to expenses.
SR&ED Tax Credit Consulting and Claims Support
SR&ED under section 37 covers work resolving a technological uncertainty through systematic investigation: a process that fails at production speed, a material that behaves unpredictably, a tolerance standard practice cannot hold. Routine quality control does not qualify.
Bill C-15 doubled the enhanced expenditure limit to $6 million, taking the maximum refundable credit to about $2.1 million, widened the taxable capital phase-out to $15 million to $75 million, and restored capital expenditure eligibility for property acquired after 15 December 2024. The T661 is due 18 months after year-end, with no extensions.
CRA Audit Preparation and Resolution for Manufacturers
- Overhead expensed rather than absorbed into work in progress.
- Assets pooled in one class regardless of type.
- Government assistance not netted against capital cost.
- Warranty provisions deducted before the cost is incurred.
- GST/HST returns that do not reconcile to reported revenue.
Canadian Manufacturing and Processing Profits Deduction (M&P Credit) Explained
The M&P Deduction and Incentives
Incentives
The deduction applies to Canadian manufacturing and processing profits computed under Regulation 5202, which allocates income between manufacturing and other activities using cost of capital and cost of labour. It is a rate reduction on income above the small business limit, not a credit against tax.
A Toronto metal fabricator with $2 million of qualifying manufacturing income had been told to expect roughly 10% of that back federally. That is not how the deduction works.
Federally the rate on M&P income is the same 15% as general income. The saving was provincial: Ontario’s 10% manufacturing rate against the 11.5% general rate, worth 1.5 points on the qualifying portion. Real, but a fraction of what had been expected, and worth knowing before it is built into a forecast. Figures changed for privacy.
Zero-Emission Technology Manufacturing Deductions and Incentives
Risk Warning: the zero-emission measure is a rate reduction, not faster CCA. It halves the corporate rate on qualifying zero-emission technology manufacturing income, to 7.5% where the general rate applies and 4.5% where the small business rate does, with a phase-out beginning in 2032.
It applies to companies manufacturing specified clean technologies, not to any manufacturer that installs energy-efficient equipment. Faster write-offs on clean energy equipment are a separate matter, sitting in Classes 43.1 and 43.2.
Accelerated Investment Incentive and Immediate Expensing for Manufacturing Assets
Bill C-15 received Royal Assent on 26 March 2026. It suspends the half-year rule for eligible property acquired after 31 December 2024 and available for use before 2034, and reinstates immediate expensing for manufacturing and processing machinery in Classes 53 and 43, clean energy equipment in Class 43.1, and zero-emission vehicles.
- The test is available for use in the taxation year, not placed in service by 31 December.
- The 100% deduction runs to 2029, stepping down to 75% for 2030 and 2031 and 55% after.
- Government assistance reduces the capital cost before the deduction is calculated.
Provincial and Federal Tax Incentives Relevant to Manufacturers
- Ontario Made Manufacturing Investment Tax Credit: 15% refundable on up to $20 million of qualifying investment, a maximum of $3 million a year, claimed on Schedule 572.
- Ontario Innovation Tax Credit: 8% refundable on eligible SR&ED expenditures.
- Ontario Research and Development Tax Credit: 3.5% non-refundable.
- Quebec: the investment and innovation credit on qualifying equipment.
- British Columbia: a new 15% refundable manufacturing and processing credit from 1 April 2026.
Investment Tax Credits Applicable to Industrial Manufacturing Activities
- SR&ED investment tax credits under 127(5) and (9).
- Apprenticeship Job Creation Tax Credit, 10% of wages to $2,000 per apprentice.
- Clean Technology Manufacturing ITC, 30% refundable on qualifying machinery for manufacturing clean technologies and processing critical minerals.
Provincial credits are government assistance and reduce the federal expenditure base under subsection 127(18), so rates do not simply add.
Managing Costs of Labour and Capital for Tax Purposes in Manufacturing
Production labour is absorbed into inventory and deducted when the goods sell. Administrative labour is a period expense. Capital costs go to their class, with freight and installation included and any grant netted off.
The provisions that matter are 18(1)(a) for deductibility, 18(1)(b) for the capital line, 10 and Regulation 1801 for inventory, and 13(7.1) for assistance reducing capital cost.
Inventory Valuation, Tracking, and Overhead Allocation Issues
Inventory, Job Costing and Year-End
Inventory
Work in progress is valued under section 10 and Regulation 1801 at the lower of cost and fair market value, or at fair market value throughout by election. Cost includes materials, direct labour and absorbed factory overhead.
- Raw materials: at cost, with purchase invoices.
- Labour: absorbed into WIP, supported by timesheets.
- Factory overhead: allocated on a documented basis.
- Scrap sales: income when realised, with receipts.
- Obsolete stock: written down where market value is below cost, with evidence.
Records are kept six years from the end of the taxation year under ITA 230(4); the equivalent GST/HST requirement is in ETA 286.
Managing Job Costing and Product Margins in Complex Manufacturing Setups
A shop had a custom job half complete at 31 December, with $25,000 of direct labour and $15,000 of related overhead already incurred. Both had been expensed as paid.
Absorbed correctly, the $40,000 sat in work in progress until the job was invoiced and delivered. The deduction was not lost, only timed, and the margin analysis finally showed what the job was actually costing. Figures changed for privacy.
Financial Reporting and Year-End Close Procedures Specific to Manufacturers
Risk Warning: a warranty provision is not deductible until the cost is incurred. Paragraph 18(1)(e) denies a deduction for a reserve or contingent liability, whatever the accounting standard requires.
Under ASPE you may well book a warranty provision when it is probable and measurable, and you should. For tax it is added back on Schedule 1 and deducted in the year the work is actually done. The same applies to inventory obsolescence reserves that are not supported by evidence of market value.
- Count inventory physically and reconcile to the ledger.
- Prepare WIP schedules by job and stage of completion.
- List fixed assets by CCA class with available-for-use dates.
- Net government assistance against the capital cost of the related assets.
- Map the trial balance to GIFI codes on Schedules 100, 125 and 141.
Strategies to Minimize CRA Risk on Manufacturing and Processing Profits
- Compute the M&P portion under Regulation 5202 and keep the working paper.
- Use the accelerated rules only for classes that qualify.
- Net assistance properly rather than deducting grants outright.
- Avoid deducting unearned warranty costs or unsupported overhead write-offs.
Integration of Technology Tools for Streamlined Manufacturing Accounting
QuickBooks or Xero with receipt capture handles the ledger; job costing or a cloud ERP links shop floor data to it; payroll software files the slips. Compilation engagements are prepared under CSRS 4200 and provide no assurance, which is worth stating plainly to lenders.
Client Engagement and Service Delivery Process
Engagement and Pricing
Engagement
Initial Consultation and Needs Assessment for Industrial Manufacturers
- Review bookkeeping accuracy and the job costing method.
- Confirm how inventory and overhead are being absorbed.
- Check capital cost allowance classification across the asset register.
- Identify exposure: expensed overhead, pooled assets, unnetted grants.
Customized Accounting and Tax Strategy Development
- Capitalising against expensing production costs.
- Recognising income on work performed rather than invoicing.
- Claiming the M&P deduction where income exceeds the small business limit.
- Coordinating SR&ED with the Ontario credits and the assistance grind.
Implementation and Ongoing Reporting Practices
- Payroll remittances on the schedule set by your withholding history.
- GST/HST returns at the frequency your supplies require.
- Statements showing overhead absorbed into work in progress.
- Input tax credits reconciled, including on zero-rated export sales.
Transparent Pricing Models and Service Packages for Manufacturing Clients
| Pricing driver | Effect | How to keep it efficient |
|---|---|---|
| Annual revenue | More transactions, more reconciliation | Keep records current monthly |
| Number of plants | Separate tracking per site | One chart of accounts across sites |
| Jobs open at year-end | WIP schedules take time | Standard job costing templates |
| Equipment purchased | Class mapping and credit claims | Keep invoices showing freight and install |
| Export sales | Zero-rating evidence and ITC review | File export documents with the invoice |
We quote a flat annual fee, including HST, before any work begins, so the scope and the price are settled at the start.
Client Success Stories Demonstrating Tax Savings and Compliance Improvements
A plastics moulder received roughly $180,000 of provincial assistance toward new equipment and had recorded it as other income while claiming capital cost allowance on the gross cost.
Under subsection 13(7.1) the assistance reduces the capital cost of the asset instead. Correcting it lowered the immediate income inclusion and the depreciable base together, and removed a recapture problem that would have surfaced on disposal. Figures changed for privacy.
How to Contact Gondaliya CPA for Industrial Manufacturing Accounting Services
Call 647-212-9559, email info@gondaliyacpa.ca, or book a free consultation. Sharad Gondaliya, CPA, leads the team, working with incorporated manufacturers across Ontario including Vaughan and Brampton, and remotely Canada-wide.
Serving Industrial Manufacturers Across Ontario and Key Canadian Regions
Regions, Exporters and Updates
Reach
Regional Expertise and Support
- Provincial corporate rates and manufacturing rates differ; Ontario is 11.5% general and 10% manufacturing.
- Payroll remittance deadlines are federal; provincial payroll levies such as Ontario’s Employer Health Tax are separate, with a $1 million exemption and a top rate of 1.95%.
- Interprovincial sales affect the GST/HST rate charged under the place of supply rules.
Supporting Exporters and Multijurisdictional Manufacturers
Key Stat: exports are zero-rated under Schedule VI, not under section 165. Section 165 is the charging provision. Zero-rating for exported goods sits in Schedule VI, Part V, and the evidence requirement is what makes the claim stand up.
Keep bills of lading, customs documents and proof the goods left Canada. Zero-rated is not exempt: you charge no tax and you keep the input tax credits on everything that went into producing the goods, which for an exporter is usually a refund position on every return.
Guidance for Manufacturers Operating Across Borders
- Recognise income on work performed, which matters most on long-running equipment builds.
- Separate Canadian source income from foreign, with bookkeeping tied to contract milestones.
- Watch US state nexus rules, which can require registration without creating double taxation where treaty relief applies.
- T1134 is due 10 months after the fiscal period for foreign affiliates, and T1135 where specified foreign property exceeds $100,000.
Continuous Updates on Tax Law Changes Affecting Industrial Manufacturers
- Bill C-15 changed first-year CCA and SR&ED for years beginning on or after 16 December 2024.
- Class 53 closed to acquisitions after 2025; machinery now falls in Class 43.
- Electronic filing is required for most corporations, with a $1,000 penalty under 162(7.2).
- The Voluntary Disclosures Program was revised effective 1 October 2025.
The items most often tightened in review are warranty provisions deducted early, the betterment against repair line, and assistance not netted against depreciable cost.
Frequently Asked Questions on Industrial Manufacturing Taxes in Canada
Frequently Asked Questions
FAQ
What is Capital Cost Allowance Class 29 and how does it benefit industrial manufacturers?+
Class 29 was the manufacturing and processing machinery class for property acquired between 2007 and 2015, written off straight line at 25%, 50% and 25% over three years. It is not clean energy equipment and it is not a 100% class. Machinery acquired now goes to Class 53 or Class 43, both currently eligible for a 100% first-year deduction. Clean energy equipment is Class 43.1 or 43.2.
How should manufacturers manage holdbacks in industrial manufacturing accounting?+
Holdback revenue is not included in income until it becomes receivable, which under lien legislation is generally when the holdback period expires or the work is certified. Costs behind the held-back work are deducted as incurred. Track holdbacks receivable and payable separately from ordinary trade balances.
What is the tax treatment of scrap revenue for manufacturers?+
Scrap and offcut sales are business income when realised, under section 9. Netting them quietly against material costs understates both revenue and cost, and it is a common review finding in fabrication shops where scrap volumes are significant.
How do warranty provisions affect manufacturing tax filings?+
Paragraph 18(1)(e) denies a deduction for a reserve or contingent liability, so a warranty provision is added back on Schedule 1 and deducted when the work is actually performed. The accounting treatment under ASPE is different and correctly recognises the provision when probable and measurable.
What is the Accelerated Investment Incentive and who qualifies?+
Bill C-15 suspended the half-year rule for eligible property acquired after 31 December 2024 and reinstated immediate expensing for M&P machinery in Classes 53 and 43, clean energy equipment in 43.1 and zero-emission vehicles, giving a 100% first-year deduction where the property becomes available for use before 2030. The step-down is 75% for 2030 and 2031 and 55% after.
When is an asset considered available for use in industrial manufacturing accounting?+
Under subsections 13(26) to (28), generally the earlier of when it is first used to earn income and the second taxation year after acquisition. Commissioning records and the first production run are what evidence the date, not the purchase order.
How should government assistance be treated in manufacturing taxes?+
Assistance toward depreciable property reduces the capital cost under subsection 13(7.1). Assistance toward current expenses is income under paragraph 12(1)(x) or reduces the expense. Assistance toward SR&ED reduces the expenditure base under 127(18). Recording a grant as other income while depreciating the gross cost is the error that produces recapture later.
What documentation supports zero-rated export claims under GST/HST rules?+
Bills of lading, customs export documents, shipping records and contracts showing the goods left Canada. The zero-rating provision is Schedule VI, Part V, and the evidence is what sustains both the zero rating and the input tax credits claimed on production inputs.
How does the processing deduction reduce taxes for industrial manufacturers?+
The manufacturing and processing profits deduction in section 125.1 reduces the rate on Canadian M&P income above the small business limit, with the M&P portion computed under Regulation 5202. Federally it produces the same 15% rate as general income; the practical saving is provincial, such as Ontario’s 10% manufacturing rate.
What are best practices for payroll and GST/HST filing compliance?+
Remit on the schedule your withholding history sets, file T4 slips by the last day of February, and match GST/HST filing frequency to your supplies. Reconcile GST/HST revenue to the T2 before filing, since a mismatch is one of the most reliable review triggers.
How can warranty provisions impact financial reporting accuracy?+
Booking the provision when probable and measurable gives statements that reflect the real obligation, which matters to lenders and bonding companies. The tax add-back is a Schedule 1 adjustment, so good accounting and correct tax treatment coexist.
What CCA class is manufacturing machinery bought in 2026?+
Class 43 at 30% base rate, because Class 53 closed to acquisitions after 2025. Under the current incentive it attracts a 100% first-year deduction where it becomes available for use before 2030.
Do I have to absorb overhead into work in progress?+
Yes. Section 10 and Regulation 1801 require inventory, including WIP, to carry materials, direct labour and factory overhead. Selling and administrative costs stay as period expenses.
Quick Answers: Key Numbers & Concepts at a Glance
At a Glance
| Item | 2026 position |
|---|---|
| M&P deduction | Section 125.1; Ontario rate 10% against 11.5% |
| M&P machinery | Class 43 after 2025; 100% first year to 2029 |
| Class 53 | 50% base; closed to acquisitions after 2025 |
| Dies, jigs and moulds | Class 12, 100% |
| Manufacturing building | Class 1, up to 10% with the additional allowance |
| Half-year rule | Suspended for property acquired after 2024 |
| SR&ED | 35% refundable on up to $6 million; T661 at 18 months |
| OMMITC | 15% refundable, maximum $3 million, Schedule 572 |
| Zero-emission manufacturing | Rate halved to 7.5% or 4.5% |
| Warranty provisions | Not deductible until incurred, ITA 18(1)(e) |
| Government assistance | Reduces capital cost, ITA 13(7.1) |
| Record retention | Six years, ITA 230(4) and ETA 286 |
Who This Is For / Not For
Fit Check
- For: Incorporated industrial manufacturers running job costing, work in progress, capital equipment programs and export sales.
- Not For: Businesses seeking customs classification, trade remedy or product regulatory advice, which sit with a customs broker or trade counsel.
People Also Ask
Quick Answers
Is the manufacturing deduction worth claiming federally?+
It produces the same 15% federal rate as general business income, so there is no federal saving. The benefit is provincial, such as Ontario’s 10% manufacturing rate against 11.5%.
Can I write off a new CNC machine in the year I buy it?+
Generally yes. M&P machinery in Class 53 or Class 43 attracts a 100% first-year deduction where it becomes available for use before 2030, under the incentive reinstated by Bill C-15.
Do grants reduce my capital cost allowance?+
Yes. Assistance toward depreciable property reduces the capital cost under 13(7.1), so you depreciate the net figure. Recording the grant as income and depreciating the gross cost creates recapture on disposal.
When can I deduct warranty costs?+
When the work is done. Paragraph 18(1)(e) denies a deduction for the provision, so it is added back on Schedule 1 and released as the costs are incurred.
How long do I keep manufacturing records?+
Six years from the end of the taxation year under subsection 230(4), with the GST/HST equivalent in section 286 of the Excise Tax Act. Job sheets and costing files belong in that set, since they support the inventory valuation.
Key Industrial Manufacturing Tax Terms Explained
Glossary
- Capital Cost Allowance Class 29: the M&P machinery class for property acquired 2007 to 2015, written off straight line at 25%, 50% and 25%.
- Holdback: contract funds retained until completion; not income until receivable.
- Scrap revenue: income from offcuts and waste, recognised when realised.
- Provision: an accounting reserve, denied as a tax deduction by 18(1)(e) until incurred.
- Immediate expensing: the 100% first-year deduction for M&P machinery reinstated by Bill C-15.
- Available for use: the date under 13(26) to (28) that starts a capital cost allowance claim.
- Government assistance: grants that reduce capital cost under 13(7.1) or expenditure base under 127(18).
- Zero-rated export: a taxable supply at 0% under Schedule VI, Part V, with input tax credits retained.
- Processing deduction: the rate reduction on M&P income under section 125.1, computed with Regulation 5202.
- Recapture and terminal loss: the adjustments under 13(1) and 20(16) when a class goes negative or empties with cost remaining.
- Apprenticeship Job Creation Tax Credit: 10% of eligible apprentice wages to $2,000 each.
- Clean Technology Manufacturing ITC: 30% refundable on qualifying clean technology manufacturing machinery.
- Leasehold improvements: Class 13, amortised over the lease term plus one renewal.
- CSRS 4200: the compilation engagement standard, which provides no assurance.
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Most of what a manufacturer gains or loses at year-end comes down to timing, and three timings matter more than the rest. Machinery bought now is written off at 100% in the first year, because Bill C-15 reinstated immediate expensing for Classes 53 and 43 and suspended the half-year rule, so a $500,000 press brake is a $500,000 deduction rather than $50,000 in the wrong class. Overhead and production labour belong in work in progress under section 10 until the goods sell, which feels like a deferral but is what makes job margins mean anything. And a warranty provision, however correctly booked under ASPE, is added back on Schedule 1 until the work is actually done, because 18(1)(e) denies reserves. Around those sit two corrections worth making before they reach a forecast: the manufacturing deduction is section 125.1 and its value is provincial, roughly 1.5 points in Ontario rather than 10% federally; and a grant toward equipment reduces the capital cost under 13(7.1) rather than being income, which is the difference between a clean asset register and recapture on the day you sell.
What is current as at 26 September 2026: Bill C-15 received Royal Assent on 26 March 2026. It suspends the half-year rule for eligible property acquired after 31 December 2024 and available for use before 2034, and reinstates 100% first-year expensing for M&P machinery in Classes 53 and 43, clean energy equipment in Class 43.1 and zero-emission vehicles, stepping down to 75% for 2030 and 2031 and 55% after. It also doubled the SR&ED enhanced expenditure limit to $6 million, widened the taxable capital phase-out to $15 million to $75 million, extended the enhanced credit to eligible Canadian public corporations and restored capital expenditure eligibility. Class 53 is closed to acquisitions after 2025, with machinery moving to Class 43. The OMMITC is 15% refundable on up to $20 million of Ontario investment, a maximum of $3 million a year on Schedule 572, with a non-refundable version for non-CCPCs. Ontario’s Employer Health Tax exemption is $1 million with a 1.95% top rate. The Voluntary Disclosures Program was revised effective 1 October 2025. Unchanged for 2026: the M&P deduction in 125.1 with Regulation 5202; inventory valuation under section 10 and Regulation 1801; the 18(1)(e) denial of reserves; assistance rules in 13(7.1), 12(1)(x) and 127(18); zero-rating of exports under Schedule VI, Part V; the T2 six-month deadline with the 162(1) penalty; the 18-month SR&ED deadline; and six-year retention under 230(4).
Industrial Manufacturing Accounting: How Gondaliya CPA Supports You
Equipment on order, jobs open at year-end, or a grant you are not sure how to record?
For a flat annual fee stated before the work starts, we map every asset to its class so the first-year deduction is the full one where it should be, absorb overhead and production labour into work in progress so margins and taxable income are both right, net government assistance against capital cost before it becomes a recapture problem, compute the M&P portion under Regulation 5202 with a working paper that holds up, prepare the SR&ED claim inside the 18-month window, and handle the T2, GST/HST and payroll that follow.
Next Steps
Book a free consultation with Gondaliya CPA. Bring your last filed return with Schedule 8, your asset register with purchase and commissioning dates, and a sample job costing sheet. Those three settle the classification, the first-year claim and the overhead absorption in one sitting. You’ll get a flat fee before any work begins. We serve Toronto, Mississauga, Vaughan, Brampton and the rest of Ontario, and work remotely across Canada.
Published: · Last updated:
Editorial policy: Classes, rates, provisions and deadlines are verified against the Income Tax Act, the Excise Tax Act, their Regulations and CRA publications before publication, and updated when the rules change.
Disclaimer: This article is educational information only and is not tax, legal, or financial advice. Capital cost allowance classification and inventory treatment depend on your specific assets and operations. Please speak with a CPA before acting.
Sharad Gondaliya is a CPA Canada & CPA USA with 15 Years+ experience of Accounting, Tax, Payroll of Corporate Small Businesses as Tax Accountant. He is fully certified CPA Ontario and CPA USA and is well known among corporate small businesses for tax planning, efficient tax solutions, and affordable CPA services. Sharad is the Principal (Director) of Gondaliya CPA – Affordable CPA Firm in Canada. Licenses: CPA Ontario: 61040184 | CPA USA (MT): PAC-CPAP-LIC-033176 | CPA USA (WA): 57629 | CPA Firm License: 61330051 View Full Author Bio