Entrepreneurship, Training and Trade
R & D: Advantages of Canada’s R & D Tax Incentives
Canada’s tax incentives for research and development are among the most generous in the world, and provide competitive advantages to companies who choose to perform SR&ED here. Repeated studies by the Conference Board of Canada, have found that the after-tax cost of R&D expenditures in Canada were lower than in all other G-7 nations.
Canada's R&D tax credits feature a broad definition of eligible costs, over a wide range of activities. Immediate and full write-offs that reduce federal and provincial taxes are granted for most current and capital R&D expenditures.
Canada-U.S. Comparison of R&D Tax Credits |
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Canada |
United States |
Legislated ongoing tax credit program. |
Legislated temporary tax credit program |
Qualified expenditures (SR&ED current and capital expenditures) are accumulated in an SR&ED expenditure pool. They can be 100% deducted in the current year or held in the pool to be deducted in any subsequent year. The SR&ED expenditure pool does not expire, and the timing and amount of deductions taken are at the discretion of the taxpayer. |
Current R&D expenditures are 100% deductible in the year incurred, or may be amortized over a minimum period of 5 years. |
SR&ED tax credits are calculated at 20% of qualified expenditures. For qualifying Canadian controlled private corporations, the tax credit rate is calculated at an enhanced rate of 35%, subject to an annual SR&ED expenditure limit of $3 million. |
R&D credit is calculated as 20% of the excess of qualified research expenditures over a base amount, plus 20% of basic research payments. |
After being applied to income taxes payable, the balance of credits to qualifying Canadian-controlled private corporations (i.e., those for whom the enhanced rate applies) are 100% refundable for current expenditures and 40% refundable for capital expenditures. |
R&D credits are non-refundable. |
Unused credits can be applied against taxes payable in the 3 preceding taxation years or the subsequent 20 taxation years. |
Unused credits can be applied against taxes payable in the preceding taxation year or the subsequent 20 taxation years. |
Total cost of arms length contracted R&D |
65% of contracted R&D eligible for tax credit |
Capital items are eligible for tax credit. |
Capital items are not eligible for tax credit. |
Certain incremental overhead costs attributable to R&D activities are eligible for claim. |
Certain incremental overhead costs (e.g. utilities) may be eligible for claim. |
Sources: Sources: Canada Revenue Agency, US Internal Revenue Service, and J. Warda, Measuring Attractiveness of R&D Tax Incentives: Canada and Major Industrial Countries, June 1999, Conference Board of Canada
For more in formation on the CCRA’s SR&ED Program please visit the CRA website at
http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html
For more information on the US R&D Credit for Increasing Research Activities, please visit the IRS website at www.irs.gov/
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