Federal Legislative Status of SR&ED

The various policies and laws concerning the SR&ED tax credit are constantly changing. It is therefore important for any company or firm to keep up with the latest news on the same. A perfect example is the Tax Act amendments that affected the SR&ED program substantially.

On March the 26th in 2011, the proposed legislation ceased to exist due to the dissolution of the parliament in preparation for the general election. At such times, it was unclear to the Canada Revenue Agency as to whether the proposed legislation would be re-introduced or not when parliament resumed.

The Canadian Federal government gives a tax credit to Canadian controlled private corporations of 35% on the first $3 million of total eligible costs or 15% for expenditure over $3 million. The legislative status at the moment states that the tax credits will be dependent on whether your company is publicly or privately controlled and the profitability of the company. It goes ahead to state that if your company is privately owned, you may carry forward the tax credit for several years if at all you have not paid the taxes of that particular year.

When your firm reaches a point of profitability, you can then offset the corporate taxes that you paid with your credit and then you will be eligible to receive a refund. The law states that if you are a small to medium firm and privately controlled corporation, the Canada Revenue Agency will give you a 35% refund cheque irrespective of whether you paid or did not pay any of the corporate taxes. This acts as a perfect incentive to startups and firms that have not yet reached profitability.

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