The emphasis on scientific development and experimental development, or simply SR&ED, in Canada can be seen in two levels. Not only the federal government in Canada promotes SR&ED, the provincial as well as the territorial government are also encouraging it.
The federal SR&ED program and the provincial tax credit programs together form a solid platform to initiate R&D. These two programs work hand in hand with each other. Once you are qualified, your provincial tax credit will be computed first. The remainder of your claims will be calculated under the federal program. Depending on the province you run your business, your SR&ED and provincial tax credit vary.
The following is an overview of the major features of Provincial Tax Credit in Canada.
The Ontario provincial tax credit is made up of 10% of Ontario Innovation Tax Credit and the non-refundable 4.5% Ontario Research and Development Tax Credit. If the business taxable paid-up capital for the preceding tax year exceeds $25 million, the annual expenses limit is $3 million which will be phased out. When the taxable paid-up capital of the preceding tax year reaches $50 million, the annual expenditure limit is estimated. If the business taxable income for the preceding year is more than $500,000 but below $800,000, the annual expense limit is also phased out.
Companies with SE&ED work done in the province are qualified for 17.5 to 35% refund credits. The province of Quebec also has special provisions for CCPCs (Canadian-controlled private corporations) showing less than $25 million assets in prior tax year. Such businesses will be eligible for 35% on the first $2 million. If the assets exceed $50 million, they will be eligible for 17.5% . Between $25 million and $50 million, the rate varies accordingly.
Corporations in British Columbia are entitled to a 10% tax credit. If the setup is a CCPC, the tax credit will be refundable; otherwise, it is not.
The federal and provincial tax credit rates for both CCPC and non-CCPC businesses are listed below:
Newfoundland and Labrador
In order to be eligible the business needs to be established in Newfoundland and Labrador, and the SE&ED work must be carried out in the province. All eligible research and development works are entitled to a tax refund of 15% of eligible expenses. The eligible work and expenses must also be qualified for federal tax credits.
Similar to Newfoundland the business must also be a permanent establishment and the research work done in the province of Nova Scotia. The tax refund will be 15% of all eligible expenditures. The work and expenses must also meet the qualification of federal SR&ED tax credits.
In the case of New Brunswick companies must be permanent establishments and research done in the province. Work and expenses must also be approved for SR&ED program for this provincial tax credit. The provincial tax refund will be 15% of all eligible expenditures.
Companies in Manitoba with eligible research and development work are entitled to 20% tax credit, partially refundable. The tax credit can also be carried forward 10 years and back dated 3 years.
Saskatchewan provides a 15% non-refundable tax credit, which can be carried forward to 10 years or back dated for 3 years.
Alberta provides a 10% tax credit, refundable.
Companies established in the Yukon are able to receive a 15% refundable tax credit on all eligible work done and expenses incurred in that territory.
As you can see each province has its own tax credit conditions. Be sure to check out what is considered relevant and eligible for your province. To find out the amount of your R&D tax refund check out SR&ED Claim Calculator.
It costs you nothing to ask for a meeting to see if any of your work this year is eligible for the SRED tax credit, because we do not get paid until your SR&ED claim successfully goes through. We strongly suggest to check out Kelid’s interactive Self-Assessment Look Up to determine eligibility of your projects. Save $1000’s in contingency fees when you register with us.