Entity Setup

Immediate Expensing for Manufacturing Buildings: Strategy & Case Study

Budget 2025 allows immediate expensing of manufacturing/processing buildings under certain conditions – learn when and how to leverage this for your entity.

By NomadicTax Research Team • 5-8 min read • November 22, 2025

## What’s changing: Immediate expensing for buildings used in manufacturing/processing Budget 2025 proposes a measure allowing **immediate expensing** (i.e., full write-off in year-one) for **eligible manufacturing or processing buildings** when **90% or more** of floor space is used to manufacture or process goods. This includes eligible additions or alterations. This replaces or supplements the standard Capital Cost Allowance (CCA) regime for such property. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) For properties first used in manufacturing or processing **before 2030**, you can deduct **100% of the cost in the first taxation year**. For properties first used in **2030 or 2031**, you get an enhanced first-year deduction of **75%**, and 55% for 2032 or 2033. After 2033, the full allowance winds down. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) ## Who can use this and qualifying criteria - Entities owning eligible buildings or business operations with manufacturing/processing uses. - The building must be **new or newly acquired** and used for manufacturing/processing first during the period. - If acquired used or acquired from an entity that previously used it, must ensure **conditions**: neither the taxpayer nor a non-arm’s-length person owned it before; cannot have been part of a rollover transaction. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) ## Strategic implications for entity setup and investment decisions - **Purchasing vs leasing**: Buying eligible buildings during the first period (before 2030) yields maximum savings because you can deduct full cost immediately. Leasing won’t necessarily give same benefit. - **Timing is critical**: If planning construction or acquisition, use before 2030 to maximize the full 100% deduction. Delaying beyond that reduces benefit. - **Space usage planning**: Ensure ≥ 90% dedicated use to manufacturing/processing; mixed-use buildings risk failing test. - **Resale and disposal**: If you change use later, recapture rules may apply, meaning some re-inclusion of deductions. Document usage precisely. - **Group-structure implications**: Entities within associated groups or with non-arm-length connections need to watch ownership history to avoid disqualification. ## Example case study XYZ Manufacturing Inc. plans to build a new factory in Ontario in 2026 and expects 95% of the building’s area will be used for manufacturing goods. The cost is $10 million. Under the new proposal, because it’s used first in 2026 (before 2030), XYZ can expense the full $10 million in 2026 instead of writing it off over many years via CCA. This dramatically boosts early-year deductions and reduces taxable income for 2026, improving cash flow. If they waited until 2031, only 75% would be deductible in first year. After 2032, benefit lowers to 55%. ## Risks and things to consider - **Cash flow vs tax liability**: While immediate expensing benefits reduce taxable income, ensure enough income in first year to utilize the deduction — otherwise, unused deductions may be lost or carried forward depending on entity type. - **Ownership history**: Acquired property with prior use may be disallowed; always verify vendor history. - **Mixed use**: Only buildings with ≥ 90% qualifying space are eligible. Mixed-use reduces eligibility. - **Accounting vs tax**: Immediate expensing may affect accounting treatment and financial statements differently; consult with financial reporting experts. --- For manufacturing firms planning capital investments over the next several years, these tax changes offer powerful incentives. Accelerated deductions help with revenues, investment decisions, and strategic timing. Speak to your tax advisor to map out investment schedules that align with eligibility windows and maximise benefits.