Reduce your corporate income tax with a credit of 3.5% for scientific research and experimental development expenditures in Ontario.
Qualifying corporations can claim a non-refundable tax credit on eligible scientific research and experimental development expenditures performed in Ontario to reduce their Ontario corporate income tax payable.
- For taxation years that commence after May 31, 2016, the tax credit rate is 3.5 per cent.
- The tax credit rate is prorated for taxation years straddling June 1, 2016.
- For taxation years that end before June 1, 2016, the tax credit rate is 4.5 per cent.
Example 1
If a corporation’s taxation year is from January 1, 2017 to December 31, 2017, the tax credit rate is 3.5 per cent.
Example 2
If a corporation’s taxation year is from January 1, 2016 to December 31, 2016, the tax credit rate is calculated as follows:
The sum of:
= (4.5% × 152 / 366) + (3.5% × 214 / 366)
= 3.9153%
- 4.5 per cent multiplied by the ratio of the number of days in the year that are before June 1, 2016 to the total number of days in the year, and
- 3.5 per cent multiplied by the ratio of the number of days in the year that are after May 31, 2016 to the total number of days in the year.
Example 3
If a corporation’s taxation year is from January 1, 2015 to December 31, 2015, the tax credit rate is 4.5 per cent.
Do I qualify?
A corporation can claim the tax credit, if the corporation:
- has a permanent establishment in Ontario
- carries on scientific research and experimental development in Ontario during the year
- is eligible to claim the federal investment tax credit under section 127 of the federal Income Tax Act (Canada)
- is not exempt from corporation income tax, and
- has filed a scientific research and experimental development expenditures claim on federal form T661 for the tax year.
Eligible expenditures
An eligible expenditure:
- is incurred for scientific research and experimental development carried on in Ontario
- qualifies under section 127 of the federal Income Tax Act (Canada), and
- is attributable to a permanent establishment in Ontario.
Eligible expenditures are reduced by government assistance, non-government assistance and contract payments, but not the Ontario Research and Development Tax Credit or federal Scientific Research and Experimental Development Investment Tax Credit. However, the Ontario Innovation Tax Credit is one form of government assistance that reduces eligible expenditures for the tax credit.
Under certain conditions, corporations dealing at non‑arm’s length may file an agreement and transfer eligible expenditures.