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How to claim the small business air quality improvement tax credit

A person wearing a mask, standing in front of a building

The small business air quality improvement tax credit is a temporary refundable tax credit to help businesses improve the air quality and ventilation in their buildings.

If you’re a physician with a medical office, you might be eligible for this tax credit.

Who is eligible to claim the air quality improvement tax credit?

The tax credit is for small businesses. You can be unincorporated (a sole proprietor) or incorporated (with a Canadian controlled private corporation). Your corporation’s taxable capital must be less than $15 million in the previous year.

The credit is available to partnerships, but each partner could only claim the proportion of the credit that represents their share of the partnership.

What expenses will be eligible?

The tax credit is designed to encourage investment in equipment that will increase the intake of outdoor air, and/or improve air cleaning or air filtration. Qualifying expenses would include those related to the purchase, installation, upgrade or conversion of HVAC systems (heating, ventilation and air conditioning systems) or the purchase of HEPA air filter devices. The equipment would have to meet minimum efficacy standards.

How long will the tax credit be available?

For now, expenses will be eligible if they were incurred between September 1, 2021, and December 31, 2022.

Note that you can’t claim September 1–December 31, 2021 expenses on your 2021 tax return — you have to wait for the 2022 tax year. If you’re incorporated and your corporate year-end is not December 31, it’s a bit more complicated:

  • September 1–December 31, 2021 expenses: Claim these in your first corporate taxation year ending after January 1, 2022.
  • January 1–December 31, 2022 expenses: Claim these in your corporate tax year in which they were incurred.

How does the tax credit work?

Tax credits directly reduce the income tax you owe. Let’s say you spend $10,000 to improve the air quality in your medical office. The air quality improvement tax credit is equal to 25% of the eligible expenses, or $2,500. This amount can be subtracted from your income tax owing.

How can I claim the tax credit?

To claim the tax credit, you will need to fill out the Air Quality Improvement Tax Credit Schedule 65 form.

Keep track of your expenses

Be sure to keep track of the eligible expenses that you incur in case the Canada Revenue Agency wants to see them.

Your accountant can help you claim these expenses. If you have any questions about financial planning, contact your MD Advisor*.

*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.