Maximum SR&ED refund: Provincial level

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:

ProvinceTax CreditRate/ PercentageMaximum Refund
AlbertaScientific research & experimental development (SR&ED) tax creditRefundable at the rate of 10% on up to $4 million in eligible expendituresMaximum credit of $400,000.
British ColumbiaBritish Columbia (BC) Scientific Research and Experimental Development Tax CreditRefundable at the rate of 10% on up to $3 million in eligible expenditures.
Only available to CCPC's.
Maximum credit of $300,000.
ManitobaManitoba Research and Development Tax Credit (2017 and later tax years)Non-refundable at the rate of 15% on eligible expenditures made under an R&D contract with a qualifying institution.

Refundable at the rate of 7.5% for expenditures not made under an R&D contract with a qualifying institution.
No maximum credit.
Newfoundland and LabradorNewfoundland and Labrador Research and Development Tax Credit (2004 and later taxation years)Refundable at the rate of 15%No maximum credit.
New BrunswickNew Brunswick Research and Development Tax Credit (2011 and later tax years)Refundable at the rate of 15%No maximum credit.
Northwest TerritoriesNo provincial SR&ED ITC program available
Nova ScotiaNova Scotia Research and Development Tax Credit (2002 and later taxation years)Refundable at the rate of 15%No maximum credit.
NunavutNo provincial SR&ED ITC program available
OntarioOntario Research and Development Tax Credit (2016 and later tax years)Non-refundable at the rate of 3.5%No maximum credit.
OntarioOntario Innovation Tax Credit (2016 and later tax years)Refundable at the rate of 8% on up to $3 million in eligible expenditures.Maximum credit of $240,000.
OntarioOntario Business-Research Institute Tax Credit (2009 and later tax years)Refundable at the rate of 20%.

Only for work performed in Ontario under contract with eligible research institutes.
Qualified expenditures are capped at $20 million annually. The maximum annual tax credit is $4 million.
Prince Edward IslandNo provincial SR&ED ITC program available
QuébecTax credit for salaries and wages (R&D)The base rate of this refundable tax credit is 14%. The rate may be increased to 30% if the corporation is a CCPC whose total assets for the preceding taxation year 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.
No maximum credit on the base rate, however there is a maximum credit of $900,000 at the increased rate.
SaskatchewanSaskatchewan Research and Development Tax Credit (2017 and later tax years)CCPC's may receive a refundable credit at a rate of 10% up to $1 million in eligible expenditures, and a non-refundable credit at a rate of %10 for the portion of eligible expenditures in excess of the $1 million annual limit.

Other types of corporations may receive a non-refundable tax credit at the rate of 10% on eligible expenditures.
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.
YukonYukon Research and Development Tax Credit (2011 and later taxation years)Refundable at the rate of 15%.

An additional 5% is available on amounts paid or payable to the Yukon College.
No maximum credit.

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:

    ON Sch. 566 - Innovation Tax Credit

    ON Sch. 566 – Innovation Tax Credit

    • 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:

    ON Sch. 508 - Research and Development Tax Credit

    ON Sch. 508 – Research and Development Tax Credit

    • 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.
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    Show 2 footnotes

    1. Ontario Ministry of Finance. (July 25, 2018). Ontario Innovation Tax Credit: How much money could I receive? Retrieved from: https://www.fin.gov.on.ca/en/credit/oitc/index.html
    2. Government of Canada. (March 17, 2022). Summary of provincial and territorial research and development (R&D) tax credits: Ontario research and development tax credit (ORDTC). Retrieved from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/summary-provincial-territorial-research-development-tax-credits-december-31-2016.html

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