NLIS 22
March 27, 2003
(Finance)

 


Amendment to Income Tax Act related to Manufacturing and Processing Profits Tax Credit

Finance Minister Joan Marie Aylward today announced that the Income Tax Act will be amended to ensure that the province�s Manufacturing and Processing Profits Tax Credit is received only by companies that actually manufacture or process in the province.

"The Manufacturing and Processing Profits Tax Credit is intended to encourage manufacturing and processing in Newfoundland and Labrador," said Minister Aylward. "However, an anomaly in the law allows corporations that do not perform these activities in the province to avail of the reduced tax rate." A company that conducts manufacturing and processing in Canada, and allocates taxable income to Newfoundland and Labrador, receives the Newfoundland and Labrador tax credit for manufacturing, whether or not there is manufacturing conducted in the province.

"This amendment will correct the anomaly by restricting the availability of this tax credit to companies that actually manufacture or process in the Province of Newfoundland and Labrador," said the minister. "It does not alter the calculation of the credit, so local manufacturers will not be affected in any way."

The amendment will apply to corporations, for taxation years ending after March 31, 2003.

Media contact: Josephine Cheeseman, Communications, (709) 729-0329.

BACKGROUNDER
Amendment to Income Tax Act :
Manufacturing and Processing Profits Tax Credit

The province is introducing legislation to amend the Income Tax Act to ensure that Newfoundland and Labrador�s Manufacturing and Processing Profits Tax Credit is received only by companies that actually manufacture or process in the province.

The general rate of provincial corporate income tax (CIT) is 14 per cent. Corporations paying taxes in Newfoundland and Labrador are eligible for a Manufacturing and Processing Profits Tax Credit that effectively reduces their tax on manufacturing and processing profits to five per cent. The reduced rate on manufacturing and processing profits is intended to encourage manufacturing and processing activity in the province. However, the current law allows all manufacturing and processing companies that have tax payable in Newfoundland and Labrador to receive this credit, even if they do not manufacture or process in the province.

A taxable corporation which operates in more than one province pays CIT to each of these provinces based upon an allocation formula. If that corporation engages in manufacturing and processing, it receives a reduced federal CIT rate based upon its Canadian manufacturing and processing profits. For provinces and territories that provide a reduced provincial CIT rate, the lower rate is based upon the same allocation formula used to allocate total Canadian income. In other words, a company that conducts manufacturing and processing in Canada, and allocates taxable income to Newfoundland and Labrador, receives the Newfoundland and Labrador tax credit for manufacturing, whether or not manufacturing is conducted here.

This amendment will permit the provincial manufacturing and processing credit to be applied only if the corporation performs manufacturing and processing at a permanent establishment located in Newfoundland and Labrador. It does not alter the mathematical calculation of the credit, so local manufacturers will still receive the credit based on their Canadian manufacturing and processing profits. For these taxpayers, there will be no financial impact.

The amendment to correct this anomaly applies to corporations in respect of taxation years ending after March 31, 2003.

2003 03 27                                      3:45 p.m.


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