The December 14, 2021 Economic and Fiscal Update proposed a temporary refundable small businesses air quality improvement tax credit of 25% on eligible air quality improvement expenses incurred by small businesses to make ventilation and air filtration systems safer and healthier.

The credit will be available for qualifying expenditures between September1,2021 and December31,2022 related to the purchase or upgrade of mechanical heating, ventilation and air conditioning(HVAC) systems, and the purchase of standalone devices designed to filter air using high-efficiency particulate air (HEPA) filters, up to a maximum of $10,000 per location. There is also a $50,000 maximum claim to be shared among all affiliated entities. The $10,000 and $50,000 limits apply to expenditures over all years (since the beginning of the program) rather than to each particular taxation year.

Eligible entity

The credit is available to qualifying corporations, partnerships and individuals other than trusts. A qualifying corporation is a Canadian-controlled private corporation (CCPC) that has (in combination with associated corporations) less than $15 million in taxable capital employed in Canada.

Qualifying expenditures

To qualify, expenditures must be made for a qualifying location in Canada used by the entity in its ordinary commercial activities.

Claiming the credit

Expenses incurred September 1 – December 31, 2021 are claimed in the entity’s first tax year that ends on or after January 1, 2022, while expenses incurred January 1 – December 31, 2022 are claimed in the tax year in which the expenditure was incurred.

The credits are taxable in the taxation year in which they are claimed.