Ontario Research and Development Tax Credit
Highlights
This program is designed for businesses like yours that are involved in scientific research and experimental development. By participating, you can claim a non-refundable tax credit on eligible expenditures, which will help reduce your Ontario corporate income tax payable. This means more funds can stay within your business, allowing you to reinvest in innovation and growth.
Key Benefits:
- Tax Credit Rate: Up to 3.5% on eligible expenditures.
- Flexibility: Unused tax credits can be carried back three years or forward for up to 20 years.
- Ease of Claiming: Simply file Schedule 508 with your T2 corporation income tax return.
Why Apply?
- Financial Relief: Reduce your tax burden and free up capital for other critical business needs.
- Support for Innovation: Encourages continued investment in research and development.
- Long-Term Benefits: The ability to carry forward unused credits ensures you can benefit even in future years.
Applying for this program is straightforward and can provide significant financial advantages, making it an excellent opportunity for your business.
Financing Details
Type of Financing: Non-Refundable Tax Credit
Tax Credit Rate:
- 3.5% for taxation years starting after May 31, 2016.
- 4.5% for taxation years ending before June 1, 2016.
- Prorated rate for taxation years straddling June 1, 2016.
Eligible Expenses:
- Expenditures on scientific research and experimental development carried out in Ontario.
- Must qualify under section 127 of the federal Income Tax Act (Canada).
- Attributable to a permanent establishment in Ontario.
Ineligible Uses:
- Funds cannot be used for expenses already reduced by government or non-government assistance and contract payments.
- The Ontario Innovation Tax Credit reduces eligible expenditures for this tax credit.
Fees:
- No fees are associated with claiming this tax credit.
Qualifications
- Must have a permanent establishment in Ontario.
- Must carry on scientific research and experimental development in Ontario during the year.
- Must be eligible to claim the federal investment tax credit under section 127 of the federal Income Tax Act (Canada).
- Must not be exempt from corporation income tax.
Must have filed a scientific research and experimental development expenditures claim on federal form T661 for the tax year.
Disqualifications:
- Corporations exempt from corporation income tax.
Description
This program offers your business a non-refundable tax credit for expenses related to scientific research and experimental development in Ontario. The credit rate is 3.5% for taxation years starting after May 31, 2016. This means you can reduce the amount of Ontario corporate income tax you owe.
Eligible expenses include costs incurred for scientific research and experimental development carried out in Ontario. These expenses must qualify under the federal Income Tax Act and be related to a permanent establishment in Ontario.
You can carry forward any unused tax credit for up to 20 years or carry it back for three years. This flexibility ensures you can maximize the benefit to your business over time.
Program Steps
Download Necessary Forms: Obtain Schedule 508, Ontario Research and Development Tax Credit, and the T2 Corporation Income Tax return from the Canada Revenue Agency website.
Prepare Documentation: Gather the following documents:
- Federal form T661 for the tax year.
- Detailed records of eligible scientific research and experimental development expenditures.
- Proof of a permanent establishment in Ontario.
- Any agreements related to expenditures with non-arm's length corporations, if applicable.
Complete Schedule 508: Fill out Schedule 508 with accurate information about your eligible expenditures and calculations for the tax credit.
Complete T2 Corporation Income Tax Return: Fill out the T2 Corporation Income Tax return, ensuring all relevant sections are completed, including the incorporation of Schedule 508.
Review and Verify Information: Double-check all forms and documentation for accuracy and completeness to avoid any delays or issues with your application.
Submit Application: File the completed Schedule 508 and T2 Corporation Income Tax return with the Canada Revenue Agency.
Monitor Application Status: Keep track of your application status and respond promptly to any additional information requests from the Canada Revenue Agency.
Utilize Tax Credit: Once approved, apply the tax credit to reduce your Ontario corporate income tax payable. Any unused portion can be carried back three years or forward 20 years.
Maintain Records: Keep all documentation and records related to your claim for future reference or potential audits.