“Innovation distinguishes between a leader and a follower” - Steve Jobs.
Research and development fuels innovation and helps with advancement at all levels. From the perspective of the government, it helps improve the economy and bring us to the forefront of innovation. From a business perspective it helps your company stay ahead of market trends and remain relevant. For individuals, it allows us to enjoy an improved lifestyle.
It is for this reason that, in an attempt to support research and development (R&D) in Ontario, the provincial government is looking to enhance the current tax credits aimed at promoting innovation as well as research and development in Ontario.
This includes enhancing the Ontario Research and Development and the Ontario Innovation Tax Credits.
Ontario Research and Development Tax Credit (ORDTC)
Currently, eligible businesses receive a 3.5% non-refundable tax credit on eligible scientific research and experimental development expenditures. To qualify for the credit, the corporation claiming the credit must:
- Have a permanent establishment in Ontario.
- Carry on research and development in the applicable tax year.
- Be eligible to claim the credit under section 127 of the Income Tax Act (ITA).
- Not be exempt from paying corporate tax.
- File a T661 for the applicable tax year.
It has been proposed that, for expenditures made on or after March 28, 2018, qualifying business would be able to claim an enhanced rate of 5.5% on over $1 million.
The enhanced research and development tax credit would not be available to businesses claiming eligible expenses that are less than 90 of the eligible expenses in the previous tax year.
The Ontario Innovation Tax Credit (OITC)
Currently, the Ontario Innovation Tax Credit offers an 8% refundable tax credit for small to medium enterprises investing in R&D. To further promote innovation by small business, the Government of Ontario is looking to enhance this tax credit.
It is proposed that the OITC be redesigned as follows:
- For companies where the ratio of R&D expenses to revenue attributed to Ontario operations is 10% or less, they will continue to receive an 8% credit.
- For companies with an R&D to revenue ratio greater than 10% but less than 20%, the credit will increase, on a straight-line basis, to a maximum credit of 12%.
- For any company with a ratio of 20% or more, the company will receive the full 12%.
For more information on how these changes could affect your tax strategy, contact us today.
