Provincial R&D credits provide an additional boost to your SR&ED tax filing. Learn how.
The majority of Canadian provinces & territories have provincial R&D tax credits which are complimentary to the federal SR&ED tax credit (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. It 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 is a list of 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 reduce current tax payable or be carried forward/back within the specified limits. In the case of startup companies, they 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 is offsetting 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 (which can be found here if you are feeling adventurous!), the following table summarizes R&D tax credits in each participating region in Canada:
|Alberta||10%||Yes||Up to $4M in eligible expenditures|
|Manitoba||15%||Partially||Generally one half refundable, remainder non-refundable (some exceptions apply)|
|Newfoundland & Labrador||15%||Yes||Unlike other provinces, eligible expenditures are not reduced by government and other assistance|
|Saskatchewan||10%||Yes||Refundable up to $1M in eligible expenditures for CCPCs, remainder non-refundable|
|Yukon||15%||Yes||Available to corporations with a permanent establishment in the Yukon at any time in the year|
Please note that the above table does not include all credits for Canadian provinces and territories, in particular 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. The publication cannot be relied upon to cover specific situations and you should not act upon the information contained therein without obtaining specific professional advice.
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