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Government: Key Federal Tax Incentives


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Scientific Research and Experimental Development (SR&ED) Program

Administered by Canada Revenue Agency, the Scientific Research and Experimental Development (SR&ED) Program encourages industrial R&D by allowing Canadian businesses to earn investment tax credits for R&D expenses incurred in Canada as well as certain R&D expenses incurred outside of Canada.

Investment tax credits (ITC’s) can be earned for qualifying current SR&ED expenditures (wages, materials, some overhead, and contract R&D) and for qualifying capital expenditures. Additionally, SR&ED expenses for capital (machinery and equipment for R&D) can be 100% written off in the current year. Qualified SR&ED expenditures can be deducted in the current year, or carried forward in an SR&ED expenditure pool and deducted at a later date. The pool does not expire, and the timing and amount of deductions taken are at the discretion of the taxpayer.

Generally, for small Canadian-controlled private corporations (CCPC’s), ITC’s are calculated at a rate of 35% of the qualifying SR&ED expenditures, to a maximum of $3 million of expenditures. Unused ITC’s calculated on current SR&ED expenditures are fully refundable, and those calculated on capital SR&ED expenditures are refundable at a rate of 40% of the earned credits. For qualifying SR&ED expenditures in excess of $3 million, ITC’s are calculated at a rate of 20% and are non-refundable. Unused ITC’s can be carried back 3 years, or forward 20 years.

For other Canadian corporations, proprietorships, partnerships, and trusts, ITC’s are calculated at a rate of 20% of qualifying SR&ED expenditures.  ITC’s earned by corporations are non-refundable, and unused ITC’s can be carried back 3 years, or forward 20 years. Unused ITC’s earned by proprietorships, partnerships, and trusts are refundable at a rate of 40% of the earned credits.

For more information, visit Canada Revenue Agency’s website at: www.cra.gc.ca/sred

Canadian Film or Video Production Tax Credit

The Canadian Film or Video Production Tax Credit (CPTC) encourages Canadian programming and helps support an active film industry in Canada. Through the CPTC, the federal government provides income tax incentives to qualified corporations for the production of Canadian films or videos.  Under the CPTC, Canadian film or video productions benefit from a refundable tax credit of 25% of qualified Canadian labour expenditures, which cannot exceed 60% of the cost of production, net of any assistance. The CPTC cannot be claimed for productions that receive a benefit from the Film or Video Production Services Tax Credit (see below).

Film or Video Production Services Tax Credit

The Film or Video Production Services Tax Credit (PSTC) is open to both Canadian and foreign-owned companies, and was introduced in 1997 to encourage Canadian and foreign-based film producers to employ the services of Canadians in producing films and videos. The PSTC is provided to eligible production corporations at the rate of 16% of its qualified Canadian labour expenditures, net of any assistance, for services rendered in Canada by Canadian residents.  The PSTC is not available if the production corporation has claimed a Canadian film or video production tax credit (CPTC) for the production.

For more information, visit Canada Revenue Agency’s website at: www.cra-arc.gc.ca/tx/nnrsdnts/flm/menu-eng.html

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