SR&ED Tax Clips: 2009 Provincial and territorial R&D tax credits (May 22, 2009)

Among the major industrialized countries, Canada offers one of the most favourable packages of R&D tax incentives. In addition to the federal incentives, taxpayers carrying on R&D may 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 may also claim the credits. In all jurisdictions that offer R&D tax credits, the credit may reduce provincial or territorial income tax. In Ontario and Quebec, R&D tax credits (except for Ontario's SR&ED tax credit) may also offset capital taxes.

2009 provincial and territorial R&D tax credit changes (see the table below for details)

  • Alberta — 10% refundable credit on up to $4 million annually commencing 2009;
  • Manitoba — fully refundable after 2009 for work with qualifying research institutes on new technologies;
  • Ontario —
    • 4.5% non-refundable credit commencing taxation years ending after December 31, 2008; and
    • enhanced taxable income phase-out thresholds for the Innovation tax credit; and
  • Saskatchewan — fully refundable for qualifying expenditures made after March 18, 2009.

Summary table

For R&D expenditures incurred
Rate
Refundable?
Carry
back
Carry
forward
After
Before
Alberta
Dec. 31/2008
n/a
10% [1]
Yes [3]
n/a
British
Columbia
Qualifying CCPCs
Aug. 31/1999
Sep. 1/2014 [2]
Corporations in general
No [4]
3 yrs
10 yrs [5]
Manitoba
Mar. 8/2005
n/a
20% [4]
Mar. 11/1992
Mar. 9/2005
15%
New Brunswick
Dec. 31/2002
n/a
15%
Yes
n/a
Feb. 25/1994
Jan. 1/2003
10%
No
3 yrs
7 yrs
Newfoundland and Labrador
Dec. 31/1995
n/a
15%
Yes
n/a
Northwest Territories
No territorial R&D tax incentives
Nova Scotia
Tax years ending
Dec. 31/1993
n/a
15%
Yes
n/a
Dec. 31/1983
Tax years ending
Jan. 1/1994
10%
No
3 yrs
7 yrs
Nunavut
No territorial R&D tax incentives
Ontario
Innovation tax credit
Tax years ending May 4/1999 [6]
n/a
10% [6]
Yes
n/a
 
Business research institute tax credit
May 6/1997
20% [7]
R&D tax credit [8]
Tax years ending Dec. 31/2008
4.5%
No
3 yrs
[8]
20 yrs
Prince Edward Island
No provincial R&D tax incentives
Quebec
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%
[10] [11]
University, public research centre and research consortium tax credit
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
June 12/2003
n/a
35%
May 14/1992
June 13/2003
40%
Private partnership tax credit [13]
March 23/2006
n/a
35%
Pre-competitive tax
credit [13]
June 12/2003
March 24/2006
35%
Jan. 1/1997
June 13/2003
40%
Saskatchewan
March 18/2009
n/a
15%
Yes
n/a
Mar. 19/1998
March 19/2009
No
3 yrs
10 yrs
Yukon
June 30/2000 or Dec. 31/2000 [14]
n/a
15% [15]
Yes
n/a

[1] Alberta's SR&ED tax credit is calculated using the definition of eligible expenditures in the federal SR&ED tax credit program. The credit is limited to 10% of $4 million of eligible expenditures annually, for a maximum annual credit of $400,000.

[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 will be fully refundable to corporations with a permanent establishment in Manitoba that incur eligible expenditures for new technologies and biotechnologies after 2009. To be eligible, expenditures must be incurred in Manitoba under a contract with a qualifying research institute, which will include prescribed post-secondary institutions and research institutes in Manitoba.

[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 credit on eligible expenditures incurred up to the expenditure limit ($3 million* or less) and 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 $400,000* and $700,000*.

* The expenditure limit and taxable income thresholds have increased, as follows:

Expenditure limit
Taxable income thresholds
Phase-out starts (i)
Phase-out ends
Taxation years ending
before 2003
$2 million
$200,000
$400,000
after 2002
$300,000
$500,000
after 2006
$400,000
$600,000
after February 25, 2008 (ii)
$3 million
$700,000
generally, after 2009 (iii)
$500,000
$800,000
  1. The taxable income thresholds have increased as a result of the increase in the federal small business limit.
  2. 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.
  3. The thresholds apply only to a taxation year 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 effective 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.

[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 increased from 35% to 37.5% on R&D expenditures incurred after April 21, 2005. The rate is 17.5% for all other taxpayers. For expenditures incurred before June 13, 2003, the 35% rate was 40% and the 17.5% was 20%. 50% of payments to unrelated subcontractors are eligible for the credit. All thresholds are in respect of the previous year, on a worldwide associated basis.

* The spending limit and asset thresholds have increased, as follows:

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)
  1. 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 that is after March 13, 2008.

[11] Corporations that qualified for Quebec's R&D wage tax credit at the 40% rate (i.e., corporations under Canadian control 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 to eligible corporations until taxation years beginning before July 1, 2004, but its expiry was accelerated to taxation years beginning after June 12, 2003.

[12] 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 private partnerships replaced the pre-competitive research tax credit.

[14] The credit applies to eligible expenditures incurred in the Yukon after June 30, 2000 for corporations, and after December 31, 2000 for individuals.

[15] Yukon's rate is 20% on R&D expenditures made to the Yukon college.

PricewaterhouseCoopers Comments
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 scientific research and experimental development (SR&ED) in the particular jurisdiction.

In addition to provincial and territorial incentives, corporations carrying on SR&ED may also benefit from federal tax credits discussed in Federal R&D investment tax credits: 1996 — 2009. 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.