Scientific research & experimental development tax credits

Your business may qualify for Federal & Ontario scientific research and experimental development tax credits. Currently the credits are slightly over 45%. Expenditures may be current in nature including labour and materials, as well as capital in nature such as equipment that may be expensed as opposed to depreciated over time.

Ontario February 25,2016 Budget

The budget reduces the Ontario Research and Development Tax Credit (“ORDTC”) to 3.5% from 4.5%. The Ontario Innovation Tax Credit (“OITC”) is reduced from 10% to 8%. Both changes are effective for eligible R&D expenditures incurred in taxation years ending on or after June 1, 2016 thereby reducing the slightly the forgeoing noted 45% combined Federal & Ontario rate.

Through my association with experts in this field, I can advise you on your eligibility and help you file claims for refundable credits and for credits that reduce your tax payable. Claims may be filed for taxation years no later than 18 months subsequent to the end of the taxation year. There may be the ability to file for at least 2 prior taxation years.

CRA definitions

The Income Tax Act defines “scientific research and experimental development” as systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is:

  • basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,
  • applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or
  • experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto, and, in applying this definition in respect of a taxpayer, includes
  • work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer, but does not include work with respect to
  • market research or sales promotion,
  • quality control or routine testing of materials, devices, products or processes,
  • research in the social sciences or the humanities,
  • prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,
  • the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,
  • style changes, or
  • (k) routine data collection
Important note!

As referred to in c) above, the work does not have to be related to a new product or service, process, etc., it can also be related to “improving existing, materials, devices, products or processes, including incremental improvements.

Contact your professional advisor prior to implementing any of the outlined strategies