Canada: Federal Investment Tax Credits For R&D And Property: 2011 - 2012

Last Updated: November 13 2012
Article by Vik Sachdev

Canada offers one of the most favourable packages of R&D tax incentives among the major industrialized countries. Federal, provincial and territorial R&D tax incentives are available. To help individuals and corporations maximize their potential R&D tax incentives, a summary of the rules for federal tax credits follows. Investment tax credits for property are also included.

Changes to the federal investment tax credit (ITC) program (apply starting 2013 or 2014)


  • reduce the 20% scientific and research expenditures (SR&ED) ITC rate to 15% for taxation years ending after 2013 (pro-rated for taxation years straddling January 1, 2014);
  • provide that capital property acquired (including shared use and leased capital property), generally after 2013, is neither deductible as an SR&ED expenditure nor eligible for ITCs;
  • reduce the overhead proxy rate (used to calculate SR&ED overhead expenses as a percentage of eligible salary and wages) from 65% to 60% after December 31, 2012, and to 55% after December 31, 2013 (pro-rated for taxation years that straddle these dates); and
  • provide that 80% (reduced from 100%) of SR&ED contract payments (net of SR&ED capital expenditures) to an arm's length contractor incurred after 2012 will be eligible for ITCs.

See our Developments " Legislative proposals confirm SR&ED changes."

Atlantic Investment Tax Credit changes

  • gradually eliminated for certain oil and gas and mining activities (see footnote 5).


This summary of ITCs and refund rates applies to expenditures incurred after December 31, 2010. For R&D ITCs before 2011, see Federal R&D tax credits: 1998 - 2010. ITCs are not earned until the property is "available for use" and can be fully claimed against a taxpayer's federal tax. Unused ITCs can reduce federal taxes payable in the previous three years and the next twenty.


Investment tax credit (ITC) rate Refund rate
Qualified SR&ED in Canada 3 Qualifying Canadian-controlled private corporations (CCPCs) 2 35% of annual qualified expenditures up to threshold ($3 million 1 or less)

+ 20% of qualified expenditures not eligible for the 35% rate (i.e., in excess of the expenditure limit)
100% of ITCs on current expenditures computed at the 35% rate

+ 40% of ITCs on capital expenditures computed at the 35% rate and of ITCs computed at the 20% rate
Other corporations 20% n/a
Individuals 40% of ITCs
Qualified property in Atlantic provinces, Gaspé region and prescribed offshore regions 4, 5 Qualifying CCPCs 2 10% 5 40% of ITCs
Other corporations n/a
Individuals 40% of ITCs


1. CCPCs will generally claim the 35% ITC for current scientific research expenditures before capital expenditures because only current expenditures qualify for the 100% refund.

Generally, a CCPC's $3 million expenditure limit in respect of the 35% credit is reduced by:

  • $10 for every $1 by which the previous year's taxable income of the associated group exceeded $500,000, up to $800,000; and
  • $0.075 for every $1 of the previous year's taxable capital of the associated group employed in Canada above $10 million, up to $50 million.

2. CCPCs will qualify for refundable tax credits if the previous year's taxable income of the associated group (before any loss carrybacks) does not exceed the CCPC's "qualifying income limit" for the year. A CCPC's $500,000 qualifying income limit is reduced by $0.0125 for every $1 of the previous year's taxable capital of the associated group employed in Canada above $10 million, up to $50 million.

3. The SR&ED ITC can be claimed on qualified expenditures incurred on SR&ED performed in Canada's Exclusive Economic Zone (an area within 200 nautical miles of the Canadian coastline).

The SR&ED ITC is extended to salary or wages incurred by a taxpayer in respect of SR&ED carried on outside Canada that is related to the taxpayer's business. Salary or wages:

  • must be incurred in respect of Canadian-resident employees carrying on SR&ED activities outside Canada and the activities must be directly undertaken, and performed solely in support of SR&ED carried on, by the taxpayer in Canada; and
  • exclude remuneration based on profits, bonus, salary or wages subject to an income or profits tax imposed by a foreign country.

The salary or wages incurred outside Canada is limited to 10% of the total salary and wages directly attributable to SR&ED carried on in Canada by the taxpayer.

For more information, see Developments, Scientific Research and Experimental Development (SR&ED) Work Outside Canada.

4. Prescribed offshore regions include offshore areas adjacent to the coasts of Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick and the Gaspé Peninsula. Qualified property generally includes new buildings and machinery and equipment to be used primarily in Canada in manufacturing or processing, logging, farming or fishing, and until March 28, 2012, mining, oil and gas (see footnote 5).

5. Generally for assets acquired after March 28, 2012, the Atlantic Investment Tax Credit (AITC) is reduced (subject to possible transitional relief) for certain oil and gas and mining activities, from 10% to 5% in 2014 and 2015 and nil after 2015.

PwC comments

Among the major industrialized countries, Canada offers one of the most favourable packages of R&D tax incentives. Federal ITCs are available to corporations that conduct qualified SR&ED anywhere in Canada and most current and certain capital expenditures on account of SR&ED are deductible for federal tax purposes. However, as mentioned above, changes will reduce the benefits that are available under the SR&ED program, commencing 2013 or 2014.

In addition to federal incentives, corporations carrying on SR&ED may also benefit from provincial or territorial tax credits discussed in 2012 Provincial and territorial R&D tax credits. Provincial and territorial tax credits are considered to be government assistance for federal tax purposes, and therefore reduce expenditures that are eligible for the federal SR&ED deduction and federal ITCs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.