Calculation Of Manufacturing And Processing Income

Consultancy

CALCULATION OF MANUFACTURING AND PROCESSING INCOME

Frankie Fenton of Frankie Fenton, Tax and Accounting Services, Langley, BC

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The formula for the calculation of “Canadian manufacturing and processing profits” is contained in Regulation 5200. Schedule 27 is to be used in calculating the proportion of a corporation’s income for tax purposes that is eligible for the manufacturing and processing tax credit. Regulation 5200 provides that the income eligible for the credit is based on the proportion of a corporation’s manufacturing and processing labour and capital to total labour and capital. A corporation’s manufacturing labour and capital is based on the labour and capital employed in “qualified activities”.

Qualified Activities

Subject to the exclusions in “Manufacturing and Processing Income Credit” (see Tax Topics 2535), qualified activities include all activities directly related to manufacturing and processing of goods for sale or lease performed in Canada, plus the following activities:

  • Engineering design of products and production facilities;
  • Receiving and storing of raw materials;
  • Producing, assembling, and handling of goods in process;
  • Inspecting and packaging of finished goods;
  • Line supervision;
  • Production support activities including security, cleaning, heating, and factory maintenance;
  • Quality and production control;
  • Repair of production facilities;
  • Pollution control;
  • All other activities performed in Canada directly in connection with manufacturing or processing in Canada of goods for sale or lease;  and
  • Scientific research carried on in Canada.

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