Air Quality Improvement Tax Credit: What You Need to Know

Operating a small business comes with its share of unforeseen expenditures, but adding a pandemic to the mix can make things a whole lot more unpredictable.

Small business owners have been on a rollercoaster of a ride since the spring of 2020. The continuous changes in regulations (i.e. capacity limits, dine-in restrictions), enforcing vaccine mandates and investing in safety measures for employees and customers are just a few of the many costs incurred since the pandemic’s beginning.   

Small Business Air Quality Improvement Tax Credit

To make it more affordable to invest in safer and healthier ventilation and air filtration, the government has introduced a refundable Small Businesses Air Quality Improvement Tax Credit of 25% on eligible air quality improvement expenses incurred by small businesses. 

If you have been thinking about investing in your air quality, this may be the perfect opportunity to do so.

Are You Qualified?

Below, we explain what type of businesses are qualify, what IAQ improvement expenses qualify, how to claim this tax credit.  

Eligible Entities

Both unincorporated sole proprietors and Canadian-controlled private corporations are eligible for the tax credit, if taxable capital employed in Canada is of or less than $15 million in the taxation year that immediately precedes the taxation year in which the qualifying expenditure incurred.

*The taxable capital of associated corporations is also counted.* 

The tax credit would also be available where qualified expenses are incurred by a partnership but can only be claimed by members of the partnership that are qualifying corporations or individuals (other than trusts), and would be based on their proportionate interest in the partnership. 

Qualifying Expenditures

Any purchase, installation, upgrade, or conversion of mechanical heating, ventilation and air conditioning (HVAC) systems and any purchase of devices designed to filter air using high-efficiency particulate air (HEPA) filters that work to increase outdoor air intake or improve air cleaning or air filtration, are qualified expenditures. 

Click here to learn more about expenses attributable to an HVAC system that would be considered qualified. 

How to Claim Tax Credit

This tax credit would be available for qualifying expenditures incurred between September 1, 2021 and December 31, 2022. The taxation year for which an eligible entity would claim the tax credit is as follows:

1. Qualifying expenditures incurred before January 1, 2022 would be claimed by an eligible entity for its first  taxation year that ends on or after January 1, 2022. 

2. Qualifying expenditures incurred on or after January 1, 2022, would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.