“Canada has the most generous tax regime for R&D of all the G-7 countries. Combined with Ontario provincial R&D incentives, a company carrying on R&D in Ontario can reduce R&D costs by up to two thirds” (Ernst & Young).

“Canada’s federal tax support for R&D has not diminished over time and continues to be one of the most generous and stable offerings in the industrialized world” (The Conference Board of Canada).

CANADA's R&D COSTS VERSUS OTHER COUNTRIES

Source: KPMG, The Competitive Alternatives: G7-2004 Edition (www.competitivealternatives.com)

Scientific Research and Experimental Development Program

The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada that will lead to new, improved, or technologically advanced products or processes. The SR&ED program is the largest single source of federal government support for industrial research and development.

Claimants can apply for SR&ED investment tax credits for expenditures such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts.
It should be noted that the Canadian Revenue Agency (CRA) is responsible for administering the SR&ED program, while the Department of Finance is responsible for the legislation that governs it.

To qualify for the SR&ED program, work must advance the understanding of scientific relations or technologies, address scientific or technological uncertainty, and incorporate a systematic investigation by qualified personnel.
Work that qualifies for SR&ED tax credits includes:

• experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;
• applied research to advance scientific knowledge with a specific practical application in view;
• basic research to advance scientific knowledge without a specific practical application in view; and
• support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research, but only if the work is commensurate with, and directly supports, the eligible experimental development, or applied or basic research.

Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.

Source: Canadian Revenue Agency.
http://www.cra-arc.gc.ca/taxcredit/sred/

Ontario R&D Incentives

Ontario provides additional tax incentives when R&D activities are conducted directly by companies in Ontario or through eligible research institutes. Additional basic incentives available to companies in Ontario include:

• Federal investment tax credits earned for SR&ED carried on in Ontario are exempt from Ontario income tax
• A 20% refundable Ontario Business-Research Institute Tax Credit (OBRITC) for contract R&D performed at eligible research institutes in Ontario such as universi-ties, colleges of applied arts and technology, and research hospitals.

In addition, for small and medium-sized companies in Ontario:

• A 10% refundable Ontario Innovation Tax Credit (OITC) for R&D.
  

Small CCPCs have:

• A minimum of 50% Canadian ownership;
• Taxable capital of less than $15 million; and
• Taxable income of less than $500,000.

Small and medium-sized companies have taxable income less than $500,000 and taxable capital less than $50 million.

For more detailed information on R&D Incentives for Innovation in Ontario visit:
http://www.2ontario.com/software/brochures/RD.asp

Additional R&D Assistance Programs

Ottawa companies qualify for assistance from NRC’s Industrial Research Assistance Program (IRAP), which has a network of specialized Industrial Technology Advisors (ITAs). IRAP is Canada's premier innovation assistance program for small and medium-sized Canadian enterprises (SMEs).

In addition, Ottawa-based companies can benefit from a number of provincial research programs for Ontario-based companies through the Ontario Centres of Excellence.