How Transferable and Production Tax Credits Work in Canada

By GrantHub Research Team · · Lire en français

How Transferable and Production Tax Credits Work in Canada

Large capital projects in Canada often come with long payback periods and high upfront costs. To reduce that risk, governments use transferable and production tax credits instead of direct grants. These tools lower taxes tied to production or investment and, in some cases, can be sold to other companies for cash.

In Canada, transferable and production tax credits are most common in energy, manufacturing, and resource processing. A clear example is Saskatchewan’s Oil and Gas Processing Investment Incentive, which offers a 15% transferable production tax credit for major processing projects.


What Are Transferable and Production Tax Credits?

While both are tax-based incentives, they work in different ways.

Production tax credits

A production tax credit reduces the taxes you owe based on output or activity, not just spending. The credit is usually earned once a facility is operating and producing.

Key features:

  • Claimed over time as production occurs
  • Tied to measurable output or processing activity
  • Offsets provincial or corporate income taxes

Transferable tax credits

A transferable tax credit can be sold to another taxpayer if you cannot use it yourself. This turns a future tax benefit into near-term cash.

Key features:

  • Not refundable by the government
  • Can be transferred to an eligible third party
  • Common in capital-intensive industries

Some programs, including Saskatchewan’s incentive, combine both concepts into a transferable production tax credit.


Example: Oil and Gas Processing Investment Incentive (Saskatchewan)

The Oil and Gas Processing Investment Incentive is a provincial program designed to encourage value-added processing in Saskatchewan’s oil, gas, and fertilizer sectors.

Program overview

  • Funding type: Transferable production tax credit
  • Credit amount: Up to 15% of eligible project costs
  • Jurisdiction: Saskatchewan
  • Status: Open

Eligible projects

To qualify, your project must:

  • Be a greenfield (new) facility or a brownfield expansion or upgrade
  • Increase processing capacity in oil, gas, or chemical fertilizer production
  • Add value by processing, transforming, or upgrading upstream products
  • Be located in Saskatchewan

Investment threshold

  • Minimum $10 million in eligible capital costs is required to apply

Eligible costs

Eligible expenses generally include capital costs directly related to:

  • Processing and upgrading facilities
  • Equipment and infrastructure needed to increase capacity
  • Project expansions tied to value-added production

Operating costs and unrelated infrastructure are typically excluded.

Transferability rules

  • The credit is transferable, not refundable
  • If your business does not have enough tax liability, you may sell the credit to another company
  • Transfer terms are negotiated privately between parties

Tools like GrantHub’s eligibility matcher can help you filter programs by province and industry in seconds, including tax credits like this one.


How These Credits Compare to Grants

Understanding the difference matters for cash flow planning.

FeatureTax CreditsGrants
Paid as cash upfrontNoSometimes
Tied to taxes owedYesNo
TransferableSometimesNo
Audit and complianceHighModerate to high

Production tax credits often pay out more slowly than grants. If timing is critical, see also How Long Do Canadian Grant Programs Take to Pay Out Funds?


Common Mistakes to Avoid

Assuming transferable means refundable
Transferable credits can be sold, but the government will not pay you cash directly.

Underestimating minimum investment requirements
Programs like the Oil and Gas Processing Investment Incentive require at least $10 million in eligible costs. Smaller projects will not qualify.

Including ineligible expenses
Only capital costs tied directly to processing and upgrading count. See What Business Expenses Are Eligible Across Canadian Grants and Loans?

Waiting too long to plan transfers
If you plan to sell a tax credit, you need buyers lined up early. Late planning can delay financing.


Frequently Asked Questions

Q: Are transferable production tax credits taxable income?
Generally, the credit reduces taxes payable rather than being treated as revenue. However, accounting treatment can vary, so professional tax advice is recommended.

Q: Can startups use production tax credits?
Yes, but only if they meet minimum investment and operational requirements. Transferability helps startups that do not yet owe significant taxes.

Q: Is the Oil and Gas Processing Investment Incentive refundable?
No. The 15% credit is transferable but not refundable.

Q: Do fertilizer processing projects qualify under this program?
Yes. Chemical fertilizer facilities connected to oil and gas value chains are eligible if they meet program criteria.

Q: How long does it take to benefit from a production tax credit?
Credits are typically realized after the facility begins production. Timing depends on project completion and tax filing cycles.

GrantHub tracks hundreds of active grant and tax credit programs across Canada — check which ones match your business profile.


Next Steps

Transferable and production tax credits can reduce project risk, but only if they fit your investment timeline and tax position. Before committing capital, map out how and when the credit will be used or transferred. GrantHub helps you compare tax credits, grants, and loans in one place, so you can choose funding that aligns with how your business actually grows.

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