Maximum SR&ED refund: Provincial level
We are often asked by our clients if there is a maximum Scientific Research and Experimental Development (SR&ED) refund that can be claimed. This is a great question and like most topics related to SR&ED, the answer is not straightforward. This article will explain the “maximum provincial SR&ED refund” and how it may affect the investment tax credits (ITCs) your organization receives.
Provincial Refund Rates for SR&ED
There are specific regulations placed on provincial ITCs, and these provincial tax credit programs and rates vary across Canada. The table below outlines all the provincial SR&ED programs, as well as their related forms, rates, and restrictions:
| 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. |
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| 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. |
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| 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. |
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| Prince Edward Island | None. |
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| 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.)) |
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| 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. | |||||
For the purpose of providing an example to our readers, we have addressed the Ontario SR&ED Tax Credits. As addressed above, in Ontario there is a limit on the Ontario Innovation Tax Credit (OITC) but none on the Ontario Research and Development Tax Credit (ORDTC).
Example: Ontario Maximum SR&ED Refund
The province of Ontario’s SR&ED tax credit programs include a refundable credit of 8% and a non-refundable credit of 3.5%. Non-refundable tax credits still count towards the claimants total SR&ED refund even though they can only be applied to reduce the taxpayers Part 1 tax owing for the tax year or be carried over to other years for the same purpose.
OITC: Refund Restrictions
The limit placed on the refundable OITC program involves the application of an overall expenditure limit:
Based on an expenditure limit of $3 million:
- for taxation years that commence after May 31, 2016, the maximum tax credit amount is $240,000
- the maximum tax credit amount is prorated for taxation years straddling June 1, 2016, and
- for taxation years that end before June 1, 2016, the maximum tax credit amount is $300,000.
The expenditure limit is gradually reduced if:
- federal taxable income of the prior tax year exceeds $500,000 and is totally eliminated at $800,000, or
- the prior year’s taxable capital exceeds $25 million and is totally eliminated at $50 million. 1
OITC: Running the Numbers
The Ontario provincial eligible expenditure limit is $3M. This means at the OITC rate of 8%, $240,000 is the maximum refund of OITC ITCs available to any claimant per tax year:
- In the example above, Line 707 shows the eligible expenditure limit ($3M) has been applied.
- The OITC ITCs calculate in Line 712 as 8% of $3,000,000 = $240,000
Be sure to review your provincial or territorial SR&ED rules before filing your SR&ED Claim.
ORDTC: No Refund Restrictions
The non-refundable ORDTC program does not have an expenditure limit imposed on it, an therefore the entirety of the claimants eligible expenditures is used to calculate these credits. The CRA describes the Ontario research and development tax credit (ORDTC) as:
It is a non-refundable tax credit based on eligible expenditures incurred by a corporation in a tax year.
The ORDTC rate is:
- 4.5% for tax years that end before June 1, 2016
- 3.5% for tax years that start after May 31, 2016
- prorated for a tax year that ends on or after June 1, 2016, and includes May 31, 2016.2
ORDTC: Running the Numbers
The ORDTC program, which has a rate of 3.5%, does not have an expenditure limit imposed on it. This means there is no maximum refund of ORDTC ITCs available to any claimant per tax year:
- In the example above, the calculation resulting in the amount on Line 202 shows there is no expenditure limit applied.
- The ORDTC ITCs calculate in Line 232 as 3.5% of the total eligible expenditures, which in this case is $4,410,000. The total ORDTC amount in this case is $154,350.
Be sure to review your provincial or territorial SR&ED rules before filing your SR&ED Claim.
Maximum Federal Amounts
In this article, we only addressed the provincial amounts. We would encourage you to look at the maximum amounts at the federal level as well. Please see our previous article Maximum SR&ED refund: Federal level for details on how your company’s SR&ED refund may be affected at the Federal level.
For details of provincial R&D tax credit rates across Canada please visit our Provincial R&D Tax Credits – Interactive Map page. We have also summarized all the provincial R&D tax credit programs side-by-side for our readers in our article Provincial Tax Credits – Making the Most of SR&ED.
Conclusion
In conclusion, unlike ITCs at the Federal level where the rate of return on refundable expenditures drops dramatically over the $3M expenditure limit but there are still available credits for those with expenditures that exceed that limit, certain provincial SR&ED programs include strict maximum ITCs that a company may receive. However, not all provincial SR&ED ITCs are limited to the $3M expenditure limit. Some provincial ITC programs, such as the Ontario Research and Development Tax Credit program, are applied tot the entirety of the claimants eligible expenditures. For more information on rates for earning an SR&ED investment tax credit and how the expenditure limits are determined and allocated for Canadian corporations please review the SR&ED Investment Tax Credit Policy.