What Has Changed in Budget 2025
Canada’s 2025 Budget proposes a new immediate expensing deduction for eligible manufacturing and processing buildings. Instead of the usual gradual capital cost allowance (CCA), businesses can deduct 100% of the cost in the first year for qualifying properties. (budget.canada.ca)
Key Conditions to Qualify
To access this benefit, a building must meet all of the following:
- Be used at least 90% for manufacturing or processing goods for sale or lease. (budget.canada.ca)
- Be newly acquired for use, with no prior owner (or not acquired by a related party that previously owned it). (budget.canada.ca)
- Be first used for eligible purposes before 2030. For property first used in 2030‐31, a scaled deduction applies (75% for 2030-31, 55% for 2032-33), and beyond that time it’s ineligible. (budget.canada.ca)
How It Differs from Existing CCA Rules
Under normal CCA rules, manufacturing/processing buildings are Class 1, with a base rate of 4% and an additional 6% for qualifying space, totaling 10% per year. Deduction happens over many years. With immediate expensing, eligible businesses can claim the full cost in year one.
Practical Example
- A company buys a brand new manufacturing facility on July 1, 2026, used entirely (100%) for processing furniture. Since it meets > 90% usage, and it’s newly acquired, they can claim full cost in 2026.
- If purchase is made in 2029, similarly full expense can be claimed in that year, assuming use requirements met. If the building is first used in 2030, only 75% is immediately deductible; use year 2032 means 55%. After that, normal CCA rates apply.
Strategic Considerations for Business Owners
- Timing matters: Delay acquisitions until after Budget Day if possible to ensure eligibility.
- Ensure that the building meets the 90% usage requirement: design space and operations to avoid leaking into non-qualifying use.
- Examine financing structures: avoid acquiring property via entities that previously owned similar property (to satisfy the “not previously owned” restriction).
- Watch for recapture: If use changes, some deductions may have to be reversed.
Benefits Beyond Immediate Savings
- Cash flow boost, since you’re getting the full deduction early.
- Makes capital asset investment more attractive; may spur modernization.
- Improves competitiveness, especially in sectors competing internationally.
Potential Risks and Limitations
- If you don’t meet use restrictions, purchase timing, or ownership tests, you may lose eligibility or face recapture.
- May create large deductions in one year, pushing you into lower taxable income, which could affect other credits or phase-outs.
Action Steps Before the Deadline
- Audit your existing acquisition pipeline: if you have planned M&P buildings that qualify, consider accelerating or delaying to align with eligibility.
- Talk to your tax advisor about structuring any ownership or lease arrangements.
- Maintain detailed records documenting the percentage of space used; beware of mixed-use buildings.
Canada’s immediate expensing measure for M&P buildings is a major tool for businesses to invest now, reduce tax burden early, and modernize operations to stay competitive.
Category: Tax Planning TaxHome: Canada Author: NomadicTax Research Team ReadTime: 5-8 min Published: true