Provincial Tax Credits – Making the Most of SR&ED
The provincial tax credits for SR&ED vary across Canada, and they are yours for the taking!
In addition to the generous federal tax credits for SR&ED, many provinces and territories have their own tax credits that can increase the overall amount of your refund. Depending on a) the province in which the organization is based, and b) where the tax returns are filed (usually the same location), your claim can be given quite an impressive “boost” that can then be put toward research and development work.
Provincial and Territorial Investment Tax Credits
Based on our knowledge of existing provincial and territorial investment tax credit programs, these are the current provincial SR&ED tax credit amounts.
| Jurisdiction | Schedule Title /Number | Description and Link to Form | Provincial SR&ED Summary | SR&ED Amount | Maximum Refund |
|---|---|---|---|---|---|
| Alberta | AB Sch. 29 | Alberta Innovation Employment Grant (IEG) | The Innovation Employment Grant provides qualified corporations with: An 8% payment for eligible R&D spending carried out in Alberta, up to the corporation’s base level of spending. An enhanced 20% payment for eligible R&D spending that exceeds the corporation’s base spending level. A firm’s base level of spending is determined by calculating the corporation’s average qualifying R&D spending over the previous 2 years. The grant provides benefits on up to $4 million in annual R&D spending. The Innovation Employment Grant is delivered through the corporate tax system and does not follow a formal application process. Eligible corporations will be able to claim the grant when they file their annual corporate tax returns. More can be found on the Government of Alberta website. | 8%-20% (after January 1, 2021) | Maximum credit of $800,000. |
| Alberta | AB Sch. 29 LISTING | Listing of IEG projects claimed | This form is submitted along with the Innovation Employment Grant. | ||
| British Columbia | BC Sch. 425 - T666 | British Columbia (BC) Scientific Research and Experimental Development Tax Credit | The British Columbia scientific research and experimental development tax credit is administered by the Canada Revenue Agency (CRA) and is refundable for Canadian-controlled private corporation (CCPC)s up to 10% of the expenditure limit (i.e., $3m x 10% = $300,000) and non-refundable otherwise at a rate of 10% of scientific research and experimental development (SR&ED) qualified British Columbia expenditures. More information is on the British Columbia website. | 10% | No maximum credit. |
| Manitoba | MB Sch. 380 | Manitoba Research and Development Tax Credit (2017 and later tax years) | The Manitoba research and development tax credit is administered by the CRA. The tax credit for research and development carried on in Manitoba under an eligible contract with a qualifying research institute is fully refundable. When eligible research and development is not undertaken under an eligible contract with an institute, 50% of the tax credit amount is refundable, the rest is non-refundable. More information about claiming SR&ED in Manitoba can be found on the Manitoba business website. | The amount of the credit is equal to 15% of eligible expenditures. When eligible research and development is not undertaken under an eligible contract with an institute, 7.5% of the tax credit amount is refundable, and 7.5% is non-refundable. | No maximum credit. |
| Newfoundland and Labrador | NL Sch. 301 | Newfoundland and Labrador Research and Development Tax Credit (2004 and later taxation years) | The Newfoundland and Labrador research and development tax credit is administered by the CRA and is fully refundable at the rate of 15% of eligible expenditures. More information about claiming SR&ED in Newfoundland and Labrador can be found on the Newfoundland and Labrador Finance website. | 15% | No maximum credit. |
| New Brunswick | NB Sch. 360 | New Brunswick Research and Development Tax Credit (2011 and later tax years) | The New Brunswick research and development tax credit is administered by the CRA and is 15% Refundable on eligible expenditures incurred within New Brunswick. More information about claiming SR&ED in New Brunswick can be found on the New Brunswick website. | 15% | No maximum credit. |
| Northwest Territories | None. |
||||
| Nova Scotia | NS Sch. 340 | Nova Scotia Research and Development Tax Credit (2002 and later taxation years) | The Nova Scotia research and development tax credit is administered by the CRA and is fully refundable at the rate of 15% of eligible expenditures. Some more information is on the Nova Scotia Finance website. | 15% | No maximum credit. |
| Nunavut | None. |
||||
| Ontario | ON Sch. 508 | Ontario Research and Development Tax Credit | The Ontario research and development tax credit (ORDTC) is administered by the CRA. Qualifying corporations can claim a non-refundable tax credit on eligible scientific research and experimental development expenditures performed in Ontario to reduce their Ontario corporate income tax payable. The tax credit rate is 3.5%. | 3.5% | No maximum credit. |
| Ontario | ON Sch. 566 | Ontario Innovation Tax Credit | The Ontario innovation tax credit (OITC) is administered by the CRA. Qualifying corporations can claim a refundable tax credit for qualified expenditures on scientific research and experimental development performed in Ontario. The tax credit rate is 8%. | 8% | Maximum credit of $240,000. |
| Ontario | ON Sch. 568 | Ontario Business-Research Institute Tax Credit | The Ontario Business Research Institute Tax Credit (OBRITC) is administered by the CRA. Qualifying corporations can claim a 20% refundable tax credit for qualified expenditures on scientific research and experimental development performed in Ontario. Find more information on Ontario Business Research Institute Tax Credit here. | 20% | Qualified expenditures are capped at $20 million annually. The maximum annual tax credit is $4 million. |
| Ontario | ON Sch. 569 | Ontario Business-Research Institute Tax Credit Contract Information | You must complete a copy of Schedule 569, for each eligible contract entered into with an eligible research institute. Find more information on Ontario Business Research Institute Tax Credit here. |
||
| Prince Edward Island | None. |
||||
| Québec | RD-222 | Deduction respecting scientific research and experimental development expenditures | For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) |
||
| Québec | RD-1029.7 | Tax credit for salaries and wages (R&D) | For eligible R&D salaries incurred by the corporation and eligible expenditures incurred under a research contract entered into, the base rate of the tax credit is 14%. This rate may be increased to 30% if the corporation is a Canadian-controlled corporation whose total assets for the preceding taxation year, including that of associated corporations, are $50 million or less. When the company's total assets range from $50 million to $75 million, the 30% rate is reduced on a straight-line basis. The increased rate applies to expenditures limited to $3 million. For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) | 14% - 30% | No maximum credit on the base rate, however there is a maximum credit of $900,000 at the increased rate. |
| Québec | RD-1029.7.8 | Agreement between associated corporations regarding the expenditure limit (French Only (Seulement en français.)) | For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) | ||
| Québec | RD-1029.8.6 | Tax credit for university research or research carried out by a public research centre or a research consortium | For eligible expenses incurred by the corporation in respect of a research contract entered into after that day, the base rate of the tax credit is 14%. This rate may be increased to 30% if the company is a Canadian-owned company with total assets for the previous tax year, including associated companies, is 50 million or less. When the company's total assets range from $ 50 million to $ 75 million, the 30% rate is reduced on a straight-line basis. The increased rate applies to expenses limited to $ 3 million, even if the corporation applies for the tax credit in respect of more than one research contract. For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) | 14% - 30% | No maximum credit on the base rate, however there is a maximum credit of $900,000 at the increased rate. |
| Québec | RD-1029.8.9.03 | Tax credit for fees and dues paid to a research consortium | The corporation may claim a tax credit equal to 14%. This rate may be increased to 30% if the company is a Canadian-owned company with total assets for the previous tax year, including associated companies, is 50 million or less. When the company's total assets range from $ 50 million to $ 75 million, the 30% rate is reduced on a straight-line basis. The increased rate applies to expenditures limited to $ 3 million. For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) | 14% - 30% | No maximum credit on the base rate, however there is a maximum credit of $900,000 at the increased rate. |
| Québec | RD-1029.8.16.1 | Tax credit for private partnership pre-competitive research | For eligible expenses incurred by the corporation in respect of a partnership agreement entered into after that day (or the renewal or extension of a partnership agreement entered into after that day), the basic rate of the credit Tax is 14%. This rate may be increased to 30% if the company is a Canadian-owned company with total assets for the previous tax year, including associated companies, is 50 million or less. When the company's total assets range from $ 50 million to $ 75 million, the 30% rate is reduced on a straight-line basis. The increased rate applies to expenses limited to $ 3 million, even if the corporation applies for the tax credit in respect of more than one partnership agreement. For information with respect to Quebec's research and development (R&D) tax credits, please visit the provincial Web site at: Scientific Research and Experimental Development – Quebec (French Only (Seulement en français.)) | 14% - 30% | No maximum credit on the base rate, however there is a maximum credit of $900,000 at the increased rate. |
| Saskatchewan | SK Sch. 403 | Saskatchewan Research and Development Tax Credit | The Saskatchewan research and development tax credit is administered by the CRA. The eligible R&D expenditures of Canadian-controlled private corporations (CCPC), except for tax exempt corporations, qualify for a 10% refundable R&D tax credit subject to an annual limit of $1 million in eligible expenditures and to a 10% non-refundable R&D tax credit for the portion of eligible expenditures in excess of the $1 million annual limit. For the other corporations, the Saskatchewan R&D tax credit remains a non-refundable tax credit at the rate of 10% on eligible expenditures incurred in Saskatchewan. More information about claiming SR&ED in Saskatchewan can be found on the Saskatchewan website. | 10% | CCPC's have a maximum refundable credit of $100,000, and no maximum non-refundable credit. Non-CCPCs have no maximum credit, but are only eligible for non-refundable credits. |
| Yukon | YT Sch. 442 | Yukon Research and Development Tax Credit | The Yukon research and development tax credit is administered by the CRA and is refundable at the rate of 15% of eligible expenditures. An additional 5% is available on amounts paid or payable to the Yukon College. | 15% | No maximum credit. |
| The CRA has also created a summary of provincial and territorial research & development (R&D) tax credits. | |||||
In addition to the amounts listed above, provinces and territories may offer additional, alternative or supplemental investment programs. For example:
- Alberta offers funding through its science and research investments grant program.
- Ontario also offers a non-refundable 4.5% Ontario Research and Development Tax Credit.
- Prince Edward Island offers grants (non-repayable contributions) under various funds.
- Across Canada, the Industrial Research Assistance Program is available to research and development companies.
How do provincial and federal tax credits work together?
This is where most organizations get confused as, at first glance, the numbers just don’t seem to add up. How can the 35% enhanced federal refund rate1 plus the 10% provincial refund rate (see map above for your province specific rate) result in a 65% refund? Furthermore, if the traditional method is used, how does 35% + 10% result in 41.5%? These questions are best answered using simple examples.
First, select your method: proxy or traditional. There are pros and cons to what can be claimed under both methods. In short:
proxy method is best for organizations where the majority of the expenses are salaries, whereas
traditional method is best when there are many other expenses, such as equipment, materials, and recruiters fees.
For more information regarding the proxy and traditional methods see our article Proxy vs Traditional SR&ED Claim: Which Method to Choose?
Proxy Method – 35% +10% = 65%!
Step 1: For the sake of simplicity, imagine that you have an employee whose salary is $100. When using the proxy method, multiply this salary amount of $100 by 0.55, which represents the 55% proxy “top up”.
This “top up” theoretically includes non-eligible administrative and support costs (salaries, rent, equipment, etc.) that are required to support SR&ED-eligible work.
You now have $155 ($100 + $55).
Step 2: Next, work out your provincial tax credit refund. As an example, in British Columbia, this amount would be 10%. It is important to note that provincial tax credits are always applied first and deducted from the total eligible amount.
Under the proxy method, the portion of the provincial or territorial R&D tax credit that relates to the PPA reduces the qualified SR&ED expenditures, because it is assistance in respect of SR&ED regardless of whether the credit is refundable or non-refundable.2
You now have $155 – $15.5 (provincial refund) = $139.5
Step 3: Finally, apply the federal tax credit.
You now have $139.5 x 35% = $48.825
The total provincial + federal tax credits:
$48.825 + 16.5 = $65.325
Thus, if you use the proxy method, of the $100 you spent on salaries, ~$65 of that total amount is eligible for a refund.
Traditional Method – 35% + 10% = 41.5%!
Step 1: If using the traditional method, work out your exact direct and indirect costs. The Government of Canada’s policy on SR&ED Salary or Wages may give you more information.3 For simplicity, it will remain $100.
Step 2: Next, work out your provincial tax credit refund. In British Columbia, this would be 10%.
You now have $100 – $10 (provincial refund) = $90
Step 3: Finally, apply the federal tax credit.
You now have $90 x 35% = $31.5
The total provincial + federal tax credits:
$31.5 + $10 = $41.5
Thus, if you use the traditional method, of the $100 you spent, you are eligible for a ~$41.5 refund.
Proxy vs. Traditional: What is the better option?
“Context is everything.”
Use this as your mantra when selecting the best method for your project.
While it may seem tempting to use the proxy method of calculation given that it yields a larger return, it is often more beneficial to use the traditional method as the eligibility criteria are much more forgiving. More forgiving eligibility criteria mean that you can claim more project expenses such as hiring a recruiter to find employees who will do SR&ED work.
Typically, labour-intensive development (such as software) will best benefit from the proxy method, whereas resource-intensive development (engineering prototyping) will best benefit from using the traditional method.
This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.
Comments are closed.