Canada has long been known as a nation of invention and innovation. The Government of Canada appears to be fostering that perception by innovation and entrepreneurship. It does this through the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program.
The SR&ED Tax Incentive Program
Companies in Canada that invest in research and development can apply for the SR&ED tax credit no matter the size of the company or the industry. On top of current corporate tax provisions, the SR&ED tax credit and provincial incentives are definite benefits from doing business in Canada.
The SR&ED Incentive Program can provide two tax credits. One allows a business to deduct funds spent on SR&ED initiatives in order to reduce that year’s tax liability. The other would see a business receiving an SR&ED investment tax credit that could be refundable or used to reduce the amount of taxes owed.
Foreign Companies Can Qualify
While Canadian companies definitely benefit from the program, foreign businesses can also qualify. However, there are only two ways in which a foreign company could benefit from an SR&ED tax credit.
A Canadian subsidiary of a foreign parent company could qualify for an SR&ED tax credit. However, the Canadian subsidiary must perform eligible research and development work in Canada alone. It must also be conducting this R&D for itself or its foreign-owned parent company.
These companies could claim a 15% SR&ED tax credit on its eligible expenses and receive a non-refundable tax credit. This credit could be used to pay down the current year’s tax levy, used towards the previous three years, or over the next 20.
Alternatively, a Canadian-controlled private corporation could qualify. This would take the form of a foreign corporation that establishes another corporation within Canada.
These Canadian-controlled private corporations could be eligible to receive a refundable tax credit of 35% of qualifying SR&ED expenditures.
Provincial Tax Credits Are Also Available
The Canada Revenue Agency administers the SR&ED Tax Credit Program on behalf of the Government of Canada. However, some provinces and territories within Canada also offer their own R&D tax incentive programs. This could increase the total amount of R&D assistance provided.
In fact, all provinces and territories have additional tax incentives for R&D, with the exception of Prince Edward Island, Nunavut, and the Northwest Territories.
While provincial R&D tax credits have to be deducted from the base of the federal SR&ED tax credit, the combined benefit could be up to two times higher than the federal incentive alone.
Maxim Innovation Knows The Lay of the Land
Still have questions about whether your company’s project is eligible for an SR&ED tax credit or other provincial incentive? Reach out to Maxim Innovation today to see how we can help answer all your questions.
