CRA Updates to Ontario Provincial R&D Tax Credits

Summary of Provincial R&D Tax Credits is updated to reflect the changes in the Ontario R&D tax credits.

CRA Updates Summary of Provincial and Territorial R&D Tax Credits

This month, the Canadian Revenue Agency (CRA) updated the Summary of Provincial and Territorial Research & Development (R&D) Tax Credits. Specifically, the Ontario Innovation Tax Credit (OITC) and the Ontario Research and Development Tax Credit (ORDTC) were the two changes made to the summaries. As we reported earlier this year, Ontario’s 2016 Annual Budget reduced both of these programs.

  • OITC decreased from 10% to 8%
  • ORDTC decreased from 4.5% to 3.5%

To reflect these changes, the CRA made the following changes to the Ontario Provincial R&D Tax Credits summary.

Changes to Ontario R&D Tax Credits

OITC as of June 30, 2016:

Ontario innovation tax credit (OITC)

The Ontario innovation tax credit is administered by the CRA after December 31, 2008, and is fully refundable at the rate of 8% of qualified expenditures.

The annual expenditure limit of $3,000,000 of qualified expenditures is phased out when the corporation’s taxable paid-up capital for its preceding tax year exceeds $25,000,000 and, it is eliminated when it reaches $50 million. The expenditure limit is also phased out when the corporation’s taxable income for its preceding tax year is over $500,000 but does not exceed $800,000.

Available to:
All corporations with a permanent establishment in Ontario, for SR&ED carried out in this province

Base:
Qualified expenditures

Eligible work and expenditures:
Only expenditures for SR&ED carried on in Ontario, for which the taxpayer is eligible for the federal SR&ED investment tax credit (ITC), qualify for the OITC.

Ontario rules draw on the federal SR&ED rules relating to the definition of SR&ED, qualified expenditures, the expenditure limit, and its reduction based on prior-year taxable income. Prescribed federal form T2SCH31 must be filed to claim the OITC.

Filing deadline for claiming the credit:
Not applicable

Carryback / carryforward:
Not applicable. Any OITC in excess of tax otherwise payable will be refunded.

Assistance:
Qualified expenditures are reduced by government and non-government assistance, but not the OITC, Ontario business-research Institute tax credit (OBRITC), Ontario research and development tax credit (ORDTC), or the federal SR&ED ITC. The OITC will reduce the federal pool of deductible SR&ED expenditures and qualified SR&ED expenditures.

Recapture:
Not applicable

Waiver of tax credit:
A corporation can waive the tax credit, or a portion of the tax credit, by delivering a written waiver with its return, which is required to be filed on or before six months after the corporation’s tax year-end, or on an amended return for that year.

Forms:
Before 2009
Ontario OITC claim form/guide for 2005 and subsequent tax years

For 2009 and later tax years
T2SCH566 Ontario Innovation Tax Credit

Legislation:
Before 2009
Section 43.3, Ontario Innovation Tax Credit, Corporations Tax Act

For 2009 and later tax years
Section 96, Ontario Innovation Tax Credit, Taxation Act, 2007

A corporation’s income and taxable income for Ontario purposes are determined by the Corporations Tax Act(Ontario) for tax years ending before 2009 and by the Taxation Act, 2007 (Ontario) for tax years ending after 2008.

Although the CRA has been reviewing and processing OITC claims since April 3, 2008, the Ontario Ministry of Revenue is responsible for (re)assessments until January 1, 2009. The CRA will fully administer the tax credit for subsequent tax years.

ORDTC as of June 30, 2013:

Ontario research and development tax credit (ORDTC)

The Ontario research and development tax credit (ORDTC) is administered by the CRA after December 31, 2008 and is non-refundable at the rate of 3.5% of eligible expenditures.

The Corporations Tax Act (Ontario) provided a deduction, equal to the portion of the federal ITC, related to qualified expenditures for SR&ED work undertaken in Ontario. With corporate income tax base harmonization, this incentive will automatically expire for tax years ending after 2008.

The 3.5% non-refundable ORDTC was established to maintain Ontario’s tax advantage.

Available to:
Corporations with a permanent establishment in Ontario, for SR&ED carried out in this province

Base:
Eligible expenditures

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits Prescribed federal form T2SCH31 must be filed to claim the ORDTC.

Filing deadline for claiming the credit:
Not applicable

Carryback / carryforward:
Carry back 3 years to reduce Ontario corporate income tax payable, but not to a tax year that ends before January 1, 2009.
Carry forward 20 years

Assistance:
Eligible expenditures are reduced by government and non-government assistance, but not the ORDTC or the federal SR&ED ITC. The ORDTC will reduce the federal pool of deductible SR&ED expenditures and qualified SR&ED expenditures.

Recapture:
Any recapture will create or increase Ontario tax otherwise payable.

Waiver of tax credit:
A corporation can waive the tax credit, or a portion of the tax credit, by delivering a written waiver with its return, which is required to be filed on or before six months after the corporation’s tax year-end, or on an amended return for that year.

Forms:
T2SCH508 Ontario Research and Development Tax Credit

Legislation:
Sections 38 to 45 of the Taxation Act, 2007 (Ontario)

A corporation’s income and taxable income for Ontario purposes are determined by the Corporations Tax Act (Ontario) for tax years ending before 2009 and by the Taxation Act, 2007 (Ontario) for tax years ending after 2008.

Although the CRA has been reviewing and processing ORDTC claims since April 3, 2008, the Ontario Ministry of Revenue is responsible for (re)assessments until January 1, 2009. The CRA will fully administer the tax credit for subsequent tax years.

The CRA website contains further information about the Ontario R&D tax credits and other provincial and territorial tax credits.

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