Ontario SR&ED Budget Update

 The recently released Ontario 2016 Budget made some modifications to the SR&ED program which could impact CCPC (Canadian Controlled Private Corporation) and non-CCPC significantly. Two Ontario SR&ED tax credits, namely –  The Ontario Innovation Tax Credit (OITC) and Ontario Research and Development Tax Credit (ORDTC) have undergone reductions. OITC decreased from 10% to 8% and ORDTC from 4.5% to 3.5%. The changes took effect for corporate tax years ending on or after June 1, 2016.

Ontario Innovation Tax Credit (OITC)

The implemented OITC rate for CCPCs is as follows:

• If your corporate tax year ends before June 1, 2016, the tax credit remains the same i.e. 10%.
• If your corporate tax year ends on or after June 1, 2016 and does not include May 31 2016, the tax credit reduces to 8%.
• If your corporate tax year ends on or after June 1, 2016 and includes May 31, 2016,  the tax credit amount is  calculated as the sum of :
  • 10% x number of days before June 1, 2016 / total number of days in the year; and
  • 8% x  number of days in the year after May 31, 2016 /  total number of days in the year.

What it means for your business

The recent changes can affect eligible businesses depending on their expenditure limit. In the case of OITC, if the expenditure limit is $3 million,  it means that

• For corporations which tax year commences after May 31, 2016, the maximum tax credit amount is $240,000.  
• For corporations which tax year ends before June 1, 2016, the maximum tax credit amount is $300,000

Ontario Research and Development Tax Credit (ORDTC)

The implemented ORDTC rate for both CCPCs and non-CCPCs are as follows:

• If your corporate tax year ends before June 1, 2016, the tax credit stays the same at 4.5%.
• If your corporate tax year ends on or after June 1, 2016 and does not include May 31 2016, the tax credit reduces to 3.5%.
• If your corporate tax year ends on or after June 1, 2016 and includes May 31, 2016,  the tax credit amount is calculated as the sum of :
  • 4.5% x number of days before June 1, 2016 / total number of days in the year; and
  • 3.5% x  number of days in the year after May 31, 2016 /  total number of days in the year.

Carry back and Carry forward

In case of OITC, any excess amount other than the tax payable is refunded. In case of ORDTC, the carry forward is 30 years. The carry back is 3 years to decrease the tax payable (applicable only for tax years payable after January 1, 2009).

Conclusion

SR&ED is one of the leading factors for business innovation. Hence, business owners are not very content with this change. In an article by Globe and Mail : “Ontario budget 2016: How Kathleen Wynne is taking from the richer to give to the poorer” says “Tax credits that predominantly benefited middle-class and upper-income families are disappearing. That money is largely being shifted toward programs targeted at low-income households.”  

Wynne’s budget revivals are expected to allow more funding to organizations such as Ontario Centres of Excellence (OCE) to moderate the impact these rate decreases will have on businesses. 

Kelid™ offers business advisory and consulting to small and medium-sized businesses and assists them to file applications for wide ranges of provincial and federal funding programs. Our qualified team of professionals have years of experience and industry expertise to bring best value to our clients. To book your free consultation, Contact Kelid™ now!