Enriched Investment Tax Credit Guidelines
The Enriched Investment Tax Credit (EITC) is intended to advance the competitiveness of Prince Edward Island’s manufacturing industry by encouraging investment for modernization and productivity improvement.
The Prince Edward Island Income Tax Act provided for a 10% Investment Tax Credit on qualified property (as defined below) for corporations involved in manufacturing and processing activities.
The Enriched Investment Tax Credit provides a tax rebate for an additional 25% tax credit for manufacturing and processing companies that invest in qualified property to implement high-productivity applications with a strong export focus.
The Enriched Investment Tax Credit applies to companies participating in activities relating to manufacturing and processing (M & P) as applied by the Canada Revenue Agency. The term “manufacturing and processing activities” is not defined in the Income Tax Act of Canada (“Federal Act”), although certain activities are listed as specific exclusions.
Exclusions include most activities involving construction, farming, fishing, mining, logging, and petroleum and natural gas operations. Administrative guidance provided by the Canada Revenue Agency suggests that manufacturing normally involves the creation of something, or the shaping, stamping or forming of an object out of something, and that processing of goods refers to a technique of preparation, handling, or other activity designed to effect a physical or chemical change in an article or substance, other than natural growth. Canada Revenue Agency Income Tax Folio S4-F15-C1 provides information to help in determining whether “manufacturing and processing” applies to particular industries, and, within an industry, where M & P starts and stops.
“Qualified property” means machinery or equipment as prescribed for the purposes of paragraph (b) of the definition “qualified property” in subsection 127(9) of the Federal Act (acquired by the corporation after 1992). In general, the property must not have been used or leased before it was acquired by the corporation and will be used by the corporation in Prince Edward Island primarily for the purpose of manufacturing or processing.
It should be noted that not all qualified property for an approved project will necessarily be eligible for the additional 25% Enhanced Investment Tax Credit. Buildings are typically not eligible for the Enriched Investment Tax Credit.
It is the responsibility of the company, and not the Province of Prince Edward Island, to ensure the property meets the definition of “qualified property”. If property fails to meet the definition as defined in the Federal Act, the investment may not be eligible for the tax credit.
Companies involved in manufacturing and processing and invest in qualified property, are entitled to claim the 10% investment tax credit without reference to government beyond the completion of the appropriate form with their corporate income tax return. No other application or certification process is required.
To claim the additional 25% tax rebate under the Enriched Investment Tax Credit, the company must apply for through Innovation PEI, prior to purchasing the qualified property. The company will provide details of the investment and estimated costs. If approved, Letter of Offer outlining the terms and conditions of the tax credit will be issued. On completion of the purchase and implementation of the machinery and equipment investment, the company will submit a cost summary to verify the amount of the qualifying property. Once the amount of qualifying property has been confirmed, the amount of the tax credit is calculated. The company will submit the company’s annual income tax filing and notice of assessment, to Innovation PEI, for the rebate cheque to be issued.
CRITERIA FOR AN ENRICHED INVESTMENT TAX CREDIT
Eligible investment for the 25% Enriched Investment Tax Credit is limited to qualified property intended for the manufacture or processing of products which:
- are intended to be sold primarily outside of Prince Edward Island;
- use advanced manufacturing and processing methods;
- exceed labour productivity standards established for industry sectors and geographic locations; and
- intend, where practical, to use products from Island suppliers.
Other conditions when evaluating an applicant’s request for assistance will include:
- potential for long-term viability, including qualifications and track record of senior management;
- cost benefit to the Province of Prince Edward Island;
- employment creation;
- export sales and import substitution;
- environmental impact;
- availability of program funds; and
- level of assistance from other government programs offered or available.
LETTER OF OFFER
For each application approved, a letter of offer will be forwarded to the company which, when accepted, shall constitute a contract between Innovation PEI and the company. The detailed terms and conditions of the enriched investment tax credit will be included.
CLAIMING THE ENRICHED INVESTMENT TAX CREDIT
To claim and receive the Rebate, the Company will present, to the Corporation’s representative assigned to the Project, the Company’s annual income tax return and notice of assessment for the tax year in which the Rebate is being claimed. Copies of invoices pertaining to Qualified Property purchased will be required for the initial claim.
CARRY FORWARD PROVISION
The Enriched Investment Tax Credit may be claimed against PEI Corporate Income Taxes for any of the seven years following the year in which the qualified property was acquired.
REQUIREMENT TO PROVIDE INFORMATION
Upon completion of the acquisition and installation of the qualified property, Innovation PEI may request information on initiative outcomes, such as impact on sales, incomes or productivity levels. The eligible corporation must agree to provide the requested information, which will be used to measure the success of the program.
AMALGAMATION WITH ANOTHER CORPORATION
Where two or more corporations amalgamate (within the meaning of subsection 87(1) of the Federal Income Tax Act) and one or more of the corporations has an enriched Investment Tax credit balance remaining, the new corporation may be deemed to be the same corporation as each of its predecessor corporations.
WINDING-UP OF A CORPORATION
Where a subsidiary is wound up and subsection 88(1) of the Federal Income ax Act applies, and the subsidiary has an enriched Investment Tax credit balance remaining, the parent corporation may be deemed, for the purposes of this section, to be the same corporation as, and a continuation of, the subsidiary.
Should the company fail to comply with the terms of the Letter of Offer or be discontinued, Innovation PEI may at its sole discretion:
- declare the company to be in non-performance (default) of the contract;
- request the company repay, in full or in part, the incentive received; and
- take necessary legal action to collect the incentive amount in full with interest.
REVOCATION OF LETTER OF OFFER
A Letter of Offer may be revoked where Government is satisfied that the corporation was not eligible to have been approved the Enriched Investment Tax Credit, or that the property was not qualified property, on the basis of information discovered after the Letter of Offer was approved.
SUMMARY OF TIMELINES AND DEADLINES
A corporation is not eligible for an Enriched Investment Tax Credit unless the corporation applies for the Enriched Investment Tax Credit prior to making the investment in the qualified property.
FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY
Information collected in connection with this program is subject to and will be treated in accordance with the Prince Edward Island Freedom of Information and Protection of Privacy Act. For additional information see https://www.princeedwardisland.ca/en/information/justice-and-public-safety/foipp-frequently-asked-questions.
Participants will consent to participate in a public announcement and/or public ceremony, relating to the investment by the company and related accomplishments, at a mutually agreeable time.