Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2015-06-09 and last amended on 2015-05-29. Previous Versions

PART LIICANADIAN MANUFACTURING AND PROCESSING PROFITS

Basic Formula

 Subject to section 5201, for the purposes of paragraph 125.1(3)(a) of the Act, “Canadian manufacturing and processing profits” of a corporation for a taxation year are hereby prescribed to be that proportion of the corporation’s adjusted business income for the year that

  • (a) the aggregate of its cost of manufacturing and processing capital for the year and its cost of manufacturing and processing labour for the year,

is of

  • (b) the aggregate of its cost of capital for the year and its cost of labour for the year.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/94-686, ss. 79(F), 80(F).

Small Manufacturers’ Rule

 For the purposes of paragraph 125.1(3)(a) of the Act, “Canadian manufacturing and processing profits” of a corporation for a taxation year are hereby prescribed to be equal to the corporation’s adjusted business income for the year where

  • (a) the activities of the corporation during the year were primarily manufacturing or processing in Canada of goods for sale or lease;

  • (b) the aggregate of

    • (i) the aggregate of all amounts each of which is the income of the corporation for the year from an active business minus the aggregate of all amounts each of which is the loss of the corporation for the year from an active business, and

    • (ii) if the corporation is associated in the year with a Canadian corporation, the aggregate of all amounts each of which is the income of the latter corporation from an active business for its taxation year coinciding with or ending in the year,

    did not exceed $200,000;

  • (c) the corporation was not engaged in any of the activities listed in subparagraphs 125.1(3)(b)(i) to (ix) of the Act at any time during the year;

  • (c.1) the corporation was not engaged in the processing of ore (other than iron ore or tar sands) from a mineral resource located outside Canada to any stage that is not beyond the prime metal stage or its equivalent;

  • (c.2) the corporation was not engaged in the processing of iron ore from a mineral resource located outside Canada to any stage that is not beyond the pellet stage or its equivalent;

  • (c.3) the corporation was not engaged in the processing of tar sands located outside Canada to any stage that is not beyond the crude oil stage or its equivalent; and

  • (d) the corporation did not carry on any active business outside Canada at any time during the year.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/82-950, s. 1;
  • SOR/94-169, s. 5;
  • SOR/94-686, ss. 30(F), 79(F).

Interpretation

 In this Part, except as otherwise provided in section 5203 or 5204,

“adjusted business income”

“adjusted business income” of a corporation for a taxation year means the amount, if any, by which

  • (a) the aggregate of all amounts each of which is the income of the corporation for the year from an active business carried on in Canada

exceeds

  • (b) the aggregate of all amounts each of which is the loss of the corporation for the year from an active business carried on in Canada; (revenu rajusté tiré d’une entreprise)

“Canadian resource profits”

“Canadian resource profits” has the meaning that would be assigned to the expression “resource profits” by section 1204 if

  • (a) section 1204 were read without reference to subparagraph 1204(1)(b)(iv), and

  • (b) the definition “resource activity” in subsection 1206(1) were read without reference to paragraph (d) of that definition; (bénéfices relatifs à des ressources au Canada)

“cost of capital”

“cost of capital” of a corporation for a taxation year means an amount equal to the aggregate of

  • (a) 10 per cent of the aggregate of all amounts each of which is the gross cost to the corporation of a property referred to in paragraph 1100(1)(e), (f), (g) or (h), paragraph 1102(1)(d) or (g) or Schedule II that

    • (i) was owned by the corporation at the end of the year, and

    • (ii) was used by the corporation at any time during the year, and

  • (b) the aggregate of all amounts each of which is the rental cost incurred by the corporation during the year for the use of any property a portion of the gross cost of which would be included by virtue of paragraph (a) if the property were owned by the corporation at the end of the year,

but for the purposes of this definition, the gross cost of a property or rental cost for the use of any property does not include that portion of those costs that reflects the extent to which the property was used by the corporation during the year

  • (c) in an active business carried on outside Canada, or

  • (d) to earn Canadian investment income or foreign investment income as defined in subsection 129(4) of the Act; (coût en capital)

“cost of labour”

“cost of labour” of a corporation for a taxation year means an amount equal to the aggregate of

  • (a) the salaries and wages paid or payable during the year to all employees of the corporation for services performed during the year, and

  • (b) all other amounts each of which is an amount paid or payable during the year for the performance during the year, by any person other than an employee of the corporation, of functions relating to

    • (i) the management or administration of the corporation,

    • (ii) scientific research and experimental development, or

    • (iii) a service or function that would normally be performed by an employee of the corporation,

but for the purposes of this definition, the salaries and wages referred to in paragraph (a) or other amounts referred to in paragraph (b) do not include that portion of those amounts that

  • (c) was included in the gross cost to the corporation of a property (other than a property that was manufactured by the corporation and leased during the year by the corporation to another person) that was included in computing the cost of capital of the corporation for the year, or

  • (d) was related to an active business carried on outside Canada by the corporation; (coût en main-d’oeuvre)

“cost of manufacturing and processing capital”

“cost of manufacturing and processing capital” of a corporation for a taxation year means 100/85 of that portion of the cost of capital of the corporation for that year that reflects the extent to which each property included in the calculation thereof was used directly in qualified activities of the corporation during the year, but the amount so calculated shall not exceed the cost of capital of the corporation for the year; (coût en capital de fabrication et de transformation)

“cost of manufacturing and processing labour”

“cost of manufacturing and processing labour” of a corporation for a taxation year means 100/75 of that portion of the cost of labour of the corporation for that year that reflects the extent to which

  • (a) the salaries and wages included in the calculation thereof were paid or payable to persons for the portion of their time that they were directly engaged in qualified activities of the corporation during the year, and

  • (b) the other amounts included in the calculation thereof were paid or payable to persons for the performance of functions that would be directly related to qualified activities of the corporation during the year if those persons were employees of the corporation,

but the amount so calculated shall not exceed the cost of labour of the corporation for the year; (coût en main-d’oeuvre de fabrication et de transformation)

“gross cost”

“gross cost” to a particular person of a property at any time means, in respect of property that has become available for use by the particular person for the purposes of subsection 13(26) of the Act, the capital cost to the particular person of the property computed without reference to subsections 13(7.1), (7.4) and (10), sections 21 and 80 and paragraph 111(4)(e) of the Act and, in respect of any other property, nil, and where the particular person acquired the property

  • (a) in the course of a reorganization in respect of which, if a dividend were received by the particular person in the course of the reorganization, subsection 55(2) of the Act would not apply to the dividend by reason of the application of paragraph 55(3)(b) of the Act, or

  • (b) from another person with whom the particular person was not dealing at arm’s length (otherwise than by reason of a right referred to in paragraph 251(5)(b) of the Act) immediately after the property was acquired,

the capital cost to the particular person of the property for the purposes of this definition shall be computed as if the property had been acquired at a capital cost equal to the gross cost of the property to the person from whom the property was acquired by the particular person; (coût brut)

“qualified activities”

“qualified activities” means

  • (a) any of the following activities, when they are performed in Canada in connection with manufacturing or processing (not including the activities listed in subparagraphs 125.1(3)(b)(i) to (ix) of the Act) in Canada of goods for sale or lease:

    • (i) engineering design of products and production facilities,

    • (ii) receiving and storing of raw materials,

    • (iii) producing, assembling and handling of goods in process,

    • (iv) inspecting and packaging of finished goods,

    • (v) line supervision,

    • (vi) production support activities including security, cleaning, heating and factory maintenance,

    • (vii) quality and production control,

    • (viii) repair of production facilities, and

    • (ix) pollution control,

  • (b) all other activities that are performed in Canada directly in connection with manufacturing or processing (not including the activities listed in subparagraphs 125.1(3)(b)(i) to (ix) of the Act) in Canada of goods for sale or lease, and

  • (c) scientific research and experimental development, as defined in section 2900, carried on in Canada,

but does not include any of

  • (d) storing, shipping, selling and leasing of finished goods,

  • (e) purchasing of raw materials,

  • (f) administration, including clerical and personnel activities,

  • (g) purchase and resale operations,

  • (h) data processing, and

  • (i) providing facilities for employees, including cafeterias, clinics and recreational facilities; (activités admissibles)

“rental cost”

“rental cost” of a property means the rents incurred for the use of that property; (coût de location)

“resource profits”

“resource profits” has the meaning assigned by section 1204; (bénéfices relatifs à des ressources)

“salaries and wages”

“salaries and wages” means salaries, wages and commissions, but does not include any other type of remuneration, any superannuation or pension benefits, any retiring allowances or any amount referred to in section 6 or 7 of the Act; (traitements et salaires)

“specified percentage”

“specified percentage” for a taxation year means

  • (a) where the year commences after 1998, 100%, and

  • (b) in any other case, the total of

    • (i) that proportion of 10% that the number of days in the year that are in 1990 is of the number of days in the year,

    • (ii) that proportion of 20% that the number of days in the year that are in 1991 is of the number of days in the year,

    • (iii) that proportion of 30% that the number of days in the year that are in 1992 is of the number of days in the year,

    • (iv) that proportion of 50% that the number of days in the year that are in 1993 is of the number of days in the year,

    • (v) that proportion of 64.3% that the number of days in the year that are in 1994 is of the number of days in the year,

    • (vi) that proportion of 71.4% that the number of days in the year that are in 1995 is of the number of days in the year,

    • (vii) that proportion of 78.6% that the number of days in the year that are in 1996 is of the number of days in the year,

    • (viii) that proportion of 85.7% that the number of days in the year that are in 1997 is of the number of days in the year,

    • (ix) that proportion of 92.9% that the number of days in the year that are in 1998 is of the number of days in the year, and

    • (x) that proportion of 100% that the number of days in the year that are in 1999 is of the number of days in the year. (pourcentage désigné)

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/94-140, s. 12;
  • SOR/94-169, s. 6;
  • SOR/94-686, ss. 53(F), 79(F), 80(F);
  • SOR/96-451, s. 6;
  • SOR/2000-296, s. 2.