Ontario – SR&ED Tax Credits
The Ontario SR&ED tax credit program was rolled out and implemented by the Canada Revenue Agency after December 31st, 2008. The tax credit in Ontario is refundable at the rate of 10% for the tax years that end before June 1st, 2016. For the tax years that start after May 31st, 2016, the tax is refunded at the rate of 8% or prorated for a tax year that includes May 31st, 2016.
The refundable tax credit rate is applied to the lesser of the corporation’s qualified expenditures incurred in the province and its annual expenditure limit. The annual expenditure limit of $3 million of qualified expenditures is usually phased out when the firm’s taxable paid-up capital for its preceding tax year exceeds $25 million and is eliminated when it reaches $50 million. There is also a phase out of the expenditure limit when the corporation’s taxable income for the preceding tax year is over $500,000 but does not exceed $800,000.
The SR&ED tax credit is available to all corporations that have a permanent establishment in Ontario for the SR&ED carried out in the province. The eligible expenditures of these corporations are reduced by government assistance, non-government assistance, contract payments and the Ontario Innovation Tax Credit, but not the Ontario R&D Tax Credit or federal SR&ED Investment Tax Credit.
To claim the tax credit, corporations are required to use Schedule 508 and file it with their T2 corporation income tax return. The tax credit can only be used to reduce the Ontario corporate income tax payable. Any unused tax credit may be carried back three years to tax years ending after December 31st, 2008 and/or carried forward 20 years.
In Ontario, corporations have a choice of waiving the tax credit as a whole or in portion by delivering a written waiver with its return. This is required to be filed on or before six months after the corporation’s tax year end or on an amended return for that year.