Federal Investment Tax Credits For R&D And Property: 2011 - 2012

Canada offers one of the most favourable packages of R&D tax incentives among the major industrialized countries. Federal, provincial and territorial R&D tax incentives are available. To help individuals and corporations maximize their potential R&D tax incentives, a summary of the rules for federal tax credits follows. Investment tax credits for property are also included.

Changes to the federal investment tax credit (ITC) program (apply starting 2013 or 2014)

Changes:

reduce the 20% scientific and research expenditures (SR&ED) ITC rate to 15% for taxation years ending after 2013 (pro-rated for taxation years straddling January 1, 2014); provide that capital property acquired (including shared use and leased capital property), generally after 2013, is neither deductible as an SR&ED expenditure nor eligible for ITCs; reduce the overhead proxy rate (used to calculate SR&ED overhead expenses as a percentage of eligible salary and wages) from 65% to 60% after December 31, 2012, and to 55% after December 31, 2013 (pro-rated for taxation years that straddle these dates); and provide that 80% (reduced from 100%) of SR&ED contract payments (net of SR&ED capital expenditures) to an arm's length contractor incurred after 2012 will be eligible for ITCs. See our Developments " Legislative proposals confirm SR&ED changes."

Atlantic Investment Tax Credit changes

gradually eliminated for certain oil and gas and mining activities (see footnote 5). Background

This summary of ITCs and refund rates applies to expenditures incurred after December 31, 2010. For R&D ITCs before 2011, see Federal R&D tax credits: 1998 - 2010. ITCs are not earned until the property is "available for use" and can be fully claimed against a taxpayer's federal tax. Unused ITCs can reduce federal taxes payable in the previous three years and the next twenty.

Investment tax credit (ITC) rate Refund rate Qualified SR&ED in Canada 3 Qualifying Canadian-controlled private corporations (CCPCs) 2 35% of annual qualified expenditures up to threshold ($3 million 1 or less) + 20% of qualified expenditures not eligible for the 35% rate (i.e., in excess of the expenditure limit) 100% of ITCs on current expenditures computed at the 35% rate + 40% of ITCs on capital expenditures computed at the 35% rate and of ITCs computed at the 20% rate Other corporations 20% n/a Individuals 40% of ITCs Qualified property in Atlantic provinces, Gaspé region and prescribed offshore regions 4, 5 Qualifying...