By Daniel Toma, CPA, CA
The majority of Canadian provinces and territories have provincial R&D tax credits which are complementary to the federal SR&ED tax credit (available at a rate of 35% for eligible CCPCs).
Provincial SR&ED tax credits are important to consider since they generally apply depending on where your business is based in Canada. This may even be an influencing factor when determining where your company establishes its R&D operation. Furthermore, unlike the federal credit, these credits usually only apply to SR&ED carried out in the respective province.
Here are some notable differences to consider:
- Whether the provincial credit is refundable or non-refundable. When it is non-refundable, the credit can only be used to reduce current tax payable or be carried forward or back within the specified limits. Startup companies often cannot use their non-refundable credits in the near term because they have no tax owing.
- The interaction with federal credits — in particular, the reduction of the federal pool of deductible SR&ED expenditures. Essentially, the provincial credit offsets expenditures being claimed at the federal level.
- Reduction of the provincial credits by government and non-government financial assistance (such as grants), which is similar to the treatment at the federal level.
Rather than detail the minutia of each provincial program, the following table summarizes R&D tax credits in each participating region in Canada:
| Province | Rate | Refundable? | Comments |
|---|---|---|---|
| Alberta | 8% / 20% | Yes | Now the Innovation Employment Grant (see note below); replaced the former 10% credit on January 1, 2021 |
| British Columbia | 10% | CCPCs only | Refundable for CCPCs; non-refundable for non-CCPCs (unused credits carry back 3 years or forward 10) |
| Manitoba | 15% | Partially | Generally one half refundable, remainder non-refundable (some exceptions apply) |
| New Brunswick | 15% | Yes | |
| Newfoundland & Labrador | 15% | Yes | Unlike other provinces, eligible expenditures are not reduced by government and other assistance |
| Nova Scotia | 15% | Yes | |
| Ontario (OITC) | 8% | Yes | |
| Ontario (ORDTC) | 3.5% | No | |
| Saskatchewan | 10% | Partially | Refundable on up to $2M in eligible expenditures for CCPCs; the remainder (and non-CCPC claims) is non-refundable |
| Yukon | 15% | Yes | For corporations with a permanent establishment in the Yukon; an additional 5% (20% total) applies to expenditures paid or payable to Yukon University |
A note on Alberta. Alberta eliminated its former 10% SR&ED tax credit and replaced it with the Innovation Employment Grant (IEG), effective January 1, 2021. The IEG uses a two-tiered structure: an 8% base rate on eligible expenditures up to the company's baseline, calculated as the average of the previous two years, plus an enhanced rate of 12% to 20% in total, on eligible R&D spending above that baseline. It applies to up to $4 million in annual eligible expenditures, providing a maximum benefit of $800,000, and is fully refundable for qualified CCPCs. Phase-out rules apply between $10 million and $50 million in taxable capital.
Please note that the table above does not include every credit available across Canadian provinces and territories, particularly those in Quebec, which are beyond the scope of this article.
The above information has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. It cannot be relied upon to cover specific situations, and you should not act upon the information contained here without obtaining specific professional advice.