Canada offers one of the most favourable packages of R&D tax incentives among the major industrialized countries. In addition to the federal incentives, taxpayers carrying on R&D can also benefit from provincial or territorial tax credits. To help individuals and corporations maximize their potential R&D tax incentives, a summary of the rules for provincial and territorial R&D tax credits follows.
All R&D tax credits are available to corporations. In Newfoundland and Labrador, Quebec and the Yukon, individuals can also claim the credits. The credits can be fully claimed against a taxpayer's provincial or territorial income tax.
2012 provincial and territorial R&D tax credit changes
- Alberta - enhanced for taxation years ending after March 31, 2012 (see footnote 1).
- Saskatchewan - revised for R&D expenditures incurred after
March 31, 2012 (see footnote 14).
|For R&D expenditures incurred||Rate||Refundable?||Carry back||Carry forward|
|Dec. 31/2008||n/a||10% 1||Yes 3||n/a|
|Qualifying CCPCs||Aug 31/1999||Sep. 1/2014
|Corporations in general||No||3 yrs||10 yrs 5|
|Mar. 8/2005||n/a||20%||Yes/No 4|
|Mar. 11/1992||Mar. 9/2005||15%|
|Feb. 25/1994||Jan. 1/2003||10%||No||3 yrs||7 yrs|
Newfoundland and Labrador
|No territorial R&D tax incentives|
|Tax years ending
|Dec. 31/1983||Tax years ending
|10%||No||3 yrs||7 yrs|
|No territorial R&D tax incentives|
|Innovation tax credit (OITC)||Tax years ending May 4/1999 6||n/a||10% 6||Yes||n/a|
|Business research institute tax credit (OBRI)||May 6/1997||20% 7|
|R&D tax credit
|Tax years ending Dec. 31/2008||4.5%||No||3 yrs
Prince Edward Island
|No provincial R&D tax incentives|
|R&D wage tax credit||April 21/2005||n/a||17.5% or 37.5% 10||Yes||n/a|
|June 12/2003||April 22, 2005||17.5% or 35% 10|
|Tax years beginning
May 9/1996 9
|June 13/2003||20% or 40%
|University, public research centre and research consortium tax credit 13||June 12/2003||n/a||35% 12|
|April 30/1987||June 13/2003||40% 12|
|Tax credit on dues and fees paid to a research consortium 13||May 14/1992||June 13/2003||40%|
|Private partnership tax credit 13||March 23/2006||n/a||35%|
|June 12/2003||March 24/2006||35%|
|Jan. 1/1997||June 13/2003||40%|
|Corporations in general||March 31/2012||n/a||15%||No||3 yrs||10 yrs|
|March 18/2009||April 1/2012|
|Qualifying CCPCs||n/a||Yes 14||n/a|
|All corporations||March 19/1998||March 19/2009||No||3 yrs||10 yrs|
|June 30/2000 or Dec. 31/2000 15||n/a||15% 15||Yes||n/a|
1. Alberta's credit equals 10% of eligible SR&ED expenditures to a maximum expenditure level of $4 million (maximum credit is $400,000). For taxation years ending after March 31, 2012, taxpayers will no longer be required to deduct the federal SR&ED investment tax credit when calculating Alberta's SR&ED refundable tax credit.
2. British Columbia extended its SR&ED tax from August 31, 2004 to August 31, 2009 and then to August 31, 2014.
3. British Columbia's refundable R&D tax credit is limited to 10% of the lesser of: (a) eligible British Columbia R&D expenditures and (b) the federal R&D expenditure limit (i.e., $3 million or less for taxation years ending after February 25, 2008).
4. Manitoba's 20% credit is:
- fully refundable for eligible expenditures incurred after 2009 by a corporation with a permanent establishment in Manitoba that carries on research and development in Manitoba under an eligible contract with a qualifying research institute; and
- partially refundable (25% in 2011 and 50% after 2011) for in-house R&D expenditures.
5. Manitoba extended the carry-forward period from 7 years to 10, for 2004 and later taxation years.
6. Ontario corporations qualify for the refundable tax credit on qualified expenditures incurred up to the expenditure limit ($3 million* or less) that must be shared by associated corporations. The expenditure limit is reduced when:
- the previous year's taxable capital of the worldwide associated group is between $25 million and $50 million; or
- the previous year's taxable income of the worldwide associated group is between $500,000* and $800,000*.
* Increases to the expenditure limit and taxable income thresholds follow:
|Expenditure limit||Taxable income thresholds||Maximum annual credit|
|Phase-out starts (i)||Phase-out ends|
|Taxation years ending||before 2003||$2 million||$200,000||$400,000||$200,000|
|after February 25, 2008 (ii)||$3 million||$700,000||$300,000|
|generally, after 2009 (iii)||$500,000||$800,000|
- (i) The taxable income thresholds have increased as a result of increases in the federal small business limit.
- (ii) To determine the expenditure limit for a taxation year that includes February 26, 2008, separate calculations with the old and new phase-out ranges are required.
- (iii) The thresholds apply to a taxation year only if the previous taxation year ends after 2008.
100% of current expenditures and 40% of capital expenditures are eligible for the credit.
The OITC was originally available to Canadian-controlled private corporations for taxation years ending after December 31, 1994. For taxation years ending after May 4, 1999, the credit is extended to all public and private corporations and is no longer limited to the amount eligible for the federal 35% R&D tax credit.
7. Ontario's credit is calculated as 20% of qualifying payments (up to $20 million annually on an associated basis) to Ontario eligible research institutes. The maximum annual credit is $4 million.
8. For taxation years ending after 2008, the R&D tax credit replaces Ontario's deduction for the portion of the federal investment tax credit relating to qualifying Ontario R&D expenditures. The credit can be carried back only to taxation years ending after 2008.
9. Before this date, Quebec's R&D wage tax credit was subject to different eligibility criteria, rates and restrictions.
10. Quebec Canadian-controlled corporations with less than $50 million* in assets, on an associated basis, can claim the 37.5% rate on up to the spending limit of $3 million* of R&D wages, on an associated basis. For those with assets between $50 million* and $75 million*, the 37.5% rate is gradually reduced to 17.5%. The rate is 17.5% for all other taxpayers. The rate increased from 35% to 37.5% on R&D expenditures incurred after April 21, 2005. For expenditures incurred before June 13, 2003, the 35% rate was 40% and the 17.5% rate was 20%. 50% of payments to arm's length subcontractors are eligible for the credit. All thresholds are in respect of the previous year, on a worldwide associated basis.
* Increases to in the spending limit and asset thresholds follow:
|Spending limit||Asset thresholds|
|Phase-out starts||Phase-out ends|
|Effective||before December 5, 2006||$2 million||$25 million||$50 million|
|after December 4, 2006||$50 million||$75 million|
|taxation years ending after March 13, 2008||$3 million (i)|
- (i) For taxation years that include March 13, 2008, the $3 million spending limit is pro-rated based on the number of days in the taxation year after March 13, 2008.
11. Corporations that qualified for Quebec's R&D wage tax credit at the 40% rate (i.e., Canadian-controlled corporations with assets under $25 million) qualified for an additional 15% tax credit based on the increase in all R&D expenditures over the average expenditures in the last three taxation years. This additional credit was to have been available until taxation years beginning before July 1, 2004, but its expiry was accelerated to taxation years beginning after June 12, 2003.
12. In some cases, Quebec's 35% (40% before June 12, 2003) credit is available on 80% of payments to certain eligible entities (e.g., universities and public research centres).
13. The Quebec tax credit for:
- dues and fees paid to a research consortium is part of the tax credit for university, public research centre and research consortium after June 12, 2003; and
- pre-competitive research is replaced by the private partnerships tax credit after March 23, 2006.
14. For R&D expenditures incurred after March 31, 2012, Saskatchewan's 15% tax credit is refundable only for Canadian-controlled private corporations (CCPCs) and only on qualifying expenditures incurred up to the expenditure limit ($3 million or less) annually.
15. The credit applies to qualified expenditures incurred in the Yukon after June 30, 2000 for corporations, and after December 31, 2000 for individuals.
16. Yukon's rate is 20% on R&D expenditures made to the Yukon College.
Among the major industrialized countries, Canada offers one of the most favourable packages of R&D tax incentives, which includes provincial and territorial tax credits available to corporations that conduct qualified SR&ED in the particular jurisdiction.
In addition to provincial and territorial incentives, corporations carrying on SR&ED can also benefit from federal tax credits discussed in Federal investment tax credits for R&D and property: 2011 - 2012 and Federal R&D tax credits: 1998 - 2010. For federal tax purposes, most current and certain capital expenditures on account of SR&ED are deductible. 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 investment tax credits.
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.