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)
See our Developments “Legislative proposals confirm SR&ED changes.”
Atlantic Investment Tax Credit changes
This summary of ITCs and refund rates applies to expenditures incurred after December 31, 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 ||Qualifying Canadian-controlled private corporations (CCPCs) ||35% of annual qualified expenditures up to threshold ($3 million  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
|Individuals||40% of ITCs|
|Qualified property in Atlantic provinces, Gaspé region and prescribed offshore regions , ||Qualifying CCPCs ||10% ||40% of ITCs|
|Individuals||40% of ITCs|
 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:
 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.
 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:
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.
 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).
 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.
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.