As announced in year two of Canada's Economic Action Plan (Budget 2010), the government is following through on a review of federal support for R&D to improve its contribution to innovation and create greater economic opportunities for business. The review will respond to reports published by the Science, Technology and Innovation Council and the Council of Canadian Academies. Business innovation is increasingly vital to maintaining both Canada's global competitive advantage and high standard of living. The Government of Canada plays an important role in fostering an economic climate that encourages business innovation. It provides substantial funding through tax incentives and direct program support. In 2008, Canada ranked second among Organization for Economic Co-operation and Development (OECD) countries in the total value of tax incentives and direct (provincial and federal) support for business R&D as a percentage of gross domestic product (GDP)

“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).

Federal R&D tax incentives

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 $3 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.

The ITC earned by a Canadian corporation that is not a CCPC is non-refundable, but may be used to reduce any taxes payable. The ITC earned by a proprietorship or certain trusts may be partially refunded after applying these tax credits against taxes payable.

For more information visit Canada Revenue Agency

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:

The Ontario Business Research Institute Tax Credit (OBRITC) is a refundable tax credit. It is available to a qualifying corporation that performs scientific research and experimental development (SR&ED) in Ontario under a contract with an eligible research institute (ERI).

The Ontario Innovation Tax Credit (OITC) is a refundable tax credit. It is available to all corporations that perform scientific research and experimental development (SR&ED) in Ontario.

The Ontario Research and Development Tax Credit (ORDTC) is a non-refundable tax credit. It is available to corporations that carry out scientific research & experimental development (SR&ED) work in Ontario. The ORDTC replaced the Ontario SR&ED tax deduction for tax years ending after December 31, 2008. 

The Ontario Tax Exemption for Commercialization (OTEC) provides a ten year tax exemption for new corporations that commercialize intellectual property that is developed by qualifying Canadian universities or colleges.

For more detailed information on R&D Incentives for Innovation in Ontario visit the Government of Ontario - Ministry of Revenue

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.