Saskatchewan Investment Tax Credit for Manufacturing and Processing

The Saskatchewan Investment Tax Credit (ITC) for Manufacturing and Processing (M&P) is available to all M&P corporations filing a T2 Corporation Income Tax (CIT) Return with some allocation of taxable income to Saskatchewan.  It is a non-refundable income tax credit which is designed to encourage plant and equipment investment for use in M&P activities in Saskatchewan.  The ITC applies as a percentage of the total capital cost of eligible building and machinery and equipment purchases.

The percentage rate of the ITC parallels the rate of the Saskatchewan Provincial Sales Tax (PST).  Therefore, for eligible purchases made after March 31, 2004, the ITC is equal to 7 per cent of the total capital cost of the asset, which includes any Provincial Sales Tax paid.  For eligible purchases made after March 26, 1999 and before April 1, 2004, the ITC is equal to 6 per cent of the total capital cost of the asset.  For eligible purchases made after March 26, 1999, the ITC is equal to 6 per cent of the total capital cost of the asset.

As an example, a company purchasing a piece of equipment costing $100 after March 31, 2004 would pay $7 Provincial Sales Tax for a total cost of $107.  Calculation of the ITC is 7 per cent of the $107 capital cost, for a credit of $7.49.  This more than offsets the $7 in Provincial Sales Tax paid on the original purchase by reducing the total cost of the equipment to $99.51.

The ITC is available for qualifying new M&P equipment and for qualifying used M&P equipment on which Provincial Sales Tax has been paid.  The application for used equipment would typically include only used equipment which has been brought into Saskatchewan from another jurisdiction, since used equipment purchased in Saskatchewan is not normally subject to Provincial Sales Tax.

Corporations can use ITCs to lower their current year Saskatchewan CIT liability, with carry-over provisions allowing corporations having no current year CIT liability to carry unused tax credits back three taxation years or forward seven taxation years. ITCs can carry through trusts and partnerships, and through certain corporate wind-ups and amalgamations, but may not be carried back to predecessor corporations.

Eligibility Criteria

Eligible Purchases

Eligible purchases of new equipment for the purposes of the ITC are defined as "qualified property" in subsections 127(9) and 127(11) of the federal Income Tax Act.  This includes property to be used in Canada primarily for the purpose of manufacturing or processing goods for sale or lease.  Eligible used equipment is similarly defined as qualified property in subsection 7.31(1) of The Income Tax Act of Saskatchewan.

Qualified property for the purposes of the ITC does not include property used for storing, shipping, selling or leasing of finished goods, purchasing raw materials, administration, purchase and resale operations, data processing and providing employee facilities.

To qualify for the ITC, eligible purchases must be either:

• a new building or new machinery and equipment, as prescribed in subsections 4600(1) and 4600(2) of the federal Income Tax Regulations, that has not been used or acquired for use or lease for any other purpose whatever before it was acquired by a taxpayer; or,
• used equipment which otherwise meets the federal definition of qualified property, and which meets the definition of qualified property in subsection 7.31(1) of The Income Tax Act of Saskatchewan, which includes Provincial Sales Tax having been paid on the asset.

Eligible purchases must also be for use in Saskatchewan primarily for the purpose of manufacturing and processing of goods for sale or lease, or leased to a lessee who can reasonably be expected to use the property in Saskatchewan primarily for manufacturing and processing of goods for sale or lease.

Eligible Activities

The ITC can be earned through the purchase of qualifying assets to be used in a manufacturing and processing activity.  The ITC uses the federal definition of manufacturing and processing.  According to federal Interpretation Bulletin IT-145R, "manufacturing" is generally defined as the creation of something or the shaping, stamping or forming of an object out of something, while "processing" is generally defined as the preparation, handling or other activity designed to effect a physical or chemical change in an article or substance other than by natural growth.

A number of activities are excluded from the definition of "manufacturing and processing" under subsection 125.1(3) of the federal Act.  These excluded activities are farming, fishing, logging, construction, oil and gas extraction and processing, mineral extraction and processing, and activities of corporations whose primary activity is not manufacturing and processing.

Summary

Administration

The ITC for qualifying new equipment is administered by Canada Revenue Agency on behalf of Saskatchewan.  It may be claimed by including a completed Schedule 402 (formerly form T-1128), available from any Canada Revenue Agency Tax Services office, with the annual T2 Corporation Income Tax Return.  As required under the terms of the Canada-Saskatchewan Tax Collection Agreement, definitions contained in the federal Income Tax Act have been used for the purposes of the ITC on new equipment.

The ITC for qualifying used equipment is administered by Saskatchewan Finance.  It must be claimed by applying directly to Saskatchewan Finance at the address below.

Saskatchewan Contact(s):
For further information and forms for the ITC for used equipment contact:
Revenue Division
Saskatchewan Finance
2350 Albert Street
Regina, Saskatchewan  S4P 4A6
Telephone: (306) 787-7773
Toll-free (information): 1-800-667-6102 (extension 7773)
Web site: http://www.gov.sk.ca/finance