Ending Soon:  Small Businesses Air Quality Improvement Tax Credit

The next scheduled date on which the Bank of Canada will announce its overnight rate target is October 26, 2022.  In this, Part 2 of a series of three, we discuss monetary and fiscal policies that affect inflation.

The Small Businesses Air Quality Improvement Tax Credit will soon expire and with it a lucrative return for those who improve their business premises.  Expenses must have occurred between September 1, 2021 and December 31, 2022.  Here’s what you need to know and share:

Specifically, the Small Businesses Air Quality Improvement Tax Credit will return 25% of the qualifying expenses for ventilation systems and air filtration devices, up to $10,000 per location to a maximum of $50,000.  The credit could therefore be worth up to $12,500. 

The amounts paid are claimed in the tax year in which the expenses incurred; so it may be necessary to adjust the 2021 tax return.  Eligible taxpayers include:

• Unincorporated sole proprietors
• Canadian-controlled private corporations (CCPCs) with taxable capital of less than $15 million employed in Canada in the taxation year immediately before the year in which the qualifying expenditure is made. For this purpose, the taxable capital of associated corporations is also counted.
• A partnership. The credit is claimed by members of the partnership that are qualifying corporations or individuals (other than trusts), and based on their proportionate interest in the partnership. Special rules apply where a partnership interest is held indirectly through one or more partnerships.

What kind of renovations qualify?  Those costs directly attributable to the purchase, installation, upgrade or conversion of mechanical heating, ventilation and air conditioning systems, as well as air filtration systems using high efficiency particulate air filters are allowed.  The government has outlined other specifics for qualifying expenditures which should be discussed with a tax specialist in advance of any major purchase or renovation you have in mind.

What costs don’t qualify?  This includes

• those expenses made or incurred under a contract before September 1, 2021
• recurring expenses or those made for routine repairs and maintenance
• financing costs will not be allowed
• money paid to someone with whom the business does not deal with at arm’s length
• salary or wages paid to an employee of the business to work on these upgrades

In addition, qualifying expenses must be reduced by any government assistance received for the expense.

Bottom Line:  Business owners who made installations of ventilation systems and air filtration devices, or will do so before the end of the calendar should be sure to save receipts and consult with their tax practitioners about the potential for making this claim.

Additional Educational Resources:

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Evelyn Jacks is Founder and President of Knowledge Bureau, holds the RWM™, MFA ™, MFA-P™ and DFA-Tax Services Specialist designations and is the best-selling author of 55 books on tax filing, planning and family wealth management.  Follow her on twitter @evelynjacks.

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