Investment Tax Credits (ITC) on Qualified Expenditures for Scientific Research and Experimental Development (SR&ED)
Corporations can earn an investment tax credit (ITC) on qualified expenditures and on property used in scientific research and experimental development (SR&ED), reported on Schedule 31, Investment Tax Credit – Corporations.
Offered by Canada Revenue Agency
Amount
Non-refundable ITC of 15% of the SR&ED qualified expenditure pool; CCPCs (and, for tax years beginning on or after December 16, 2024, eligible Canadian public corporations) may earn an enhanced 35% ITC on qualified SR&ED expenditures up to an expenditure limit of $3 million ($6 million for tax years beginning on or after December 16, 2024), refundable if it cannot be used to offset Part I tax; expenditures above the limit earn 15% (40% refundable for qualifying corporations); 40% partial refundability on capital expenditures
Quick eligibility check
Who can apply
A qualifying corporation is a CCPC whose taxable income for the previous tax year before the application of the specified future tax consequences plus the taxable incomes of all associated corporations before the application of the specified future tax consequences (for tax years ending in the same calendar year as the corporation's previous tax year) is not more than the total of the qualifying income limits of the corporation and the associated corporations for those previous years.
The qualifying income limit is $500,000. It begins to decrease when the total taxable capital employed in Canada of the corporation and its associated corporations for the previous tax year reaches $10 million and becomes nil at $50 million.
The range is from $15 million to $75 million for tax years that begin on or after December 16, 2024.
Corporations may be associated because the same group of persons controls them, but the members of this group do not act together and have no other connection to each other.
CCPCs that are associated only because of the above definition of a group will not be considered associated for the following calculations:
- the refundable ITC on eligible SR&ED expenditures
- calculating the expenditure limit
- allocating the expenditure limit
For this exception to apply, one of the corporations must have at least one shareholder who is not common to both corporations.
A corporation cannot claim an ITC for an expense or expenditure incurred in the course of earning income if any of that income is exempt income or is exempt from tax under Part I.
Eligibility for an ITC is limited to those expenses or expenditures identified in Schedule 31 filed within 12 months of the filing due date for the tax year in which the expenses were made or incurred [without reference to subsection 78(4)].
About the funding
You may earn a non-refundable ITC of 15% of the SR&ED qualified expenditure pool at the end of the tax year.
Some CCPCs may earn the enhanced ITC at the rate of 35% on the SR&ED qualified expenditure pool, up to their expenditure limit.
The expenditure limit is $3 million and is subject to a phase-out based on the taxable capital employed in Canada of the CCPC and its associated corporations for the previous tax year. The limit begins to decrease when this capital reaches $10 million and becomes nil at $50 million and higher.
For tax years that begin on or after December 16, 2024:
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- the expenditure limit increases from $3 million to $6 million
- the phase-out thresholds increase from $10 million and $50 million, to $15 million and $75 million, respectively. CCPCs have the option to have their annual expenditure limit determined based on gross revenue instead of taxable capital
- the enhanced refundable SR&ED credit is extended to eligible Canadian public corporations. However, unlike CCPCs:
- the $15 million and $75 million phase-out thresholds are based on the corporation's gross revenue over the prior three fiscal years instead of its taxable capital for the preceding year
- qualifying expenditures in excess of an eligible Canadian public corporation's annual expenditure limit are not eligible for a partially refundable SR&ED ITC
For property acquired after December 15, 2024 (or lease costs first becoming payable after that date) the pre-2014 eligibility of capital expenditures is reinstated to both the SR&ED income deduction and the SR&ED ITC. Qualifying CCPCs and eligible Canadian public corporations eligible to earn a 35% SR&ED ITC are entitled to partial refundability of the credit at a rate of 40% on their capital expenditures.
If the corporation is associated with one or more CCPCs, you have to allocate the expenditure limit among the associated CCPCs on Schedule 49, Agreement Among Associated Canadian Controlled Private Corporations to Allocate the Expenditure Limit. For more information about this schedule, see Schedule 49.
CCPCs that do not meet the definition of qualifying corporation can earn ITCs at the enhanced rate of 35% on qualified SR&ED expenditures up to their expenditure limit. This ITC can be refunded if it cannot be used in the year to offset Part I tax. The ITC earned on SR&ED expenditures that exceed the expenditure limit is earned at the rate of 15% and it is not refundable.
CCPCs that meet the definition of qualifying corporation can also earn ITCs at the enhanced rate of 35% on qualified SR&ED expenditures up to their expenditure limit. This ITC can be refunded if it cannot be used in the year to offset Part I tax. For qualifying corporations, the ITC earned on SR&ED expenditures that exceed the expenditure limit is earned at the rate of 15%, of which 40% is also refundable.
You can carry forward certain ITCs not previously deducted for 20 years, or carry them back 3 years, to reduce Part I tax. You can only carry back ITCs to a previous year if you cannot deduct them in the year you earn them.
B. Qualified expenditures and SR&ED qualified expenditure pool are defined in subsection 127(9). Scientific research and experimental development is defined in subsection 248(1).
The SR&ED qualified expenditure pool includes qualified SR&ED expenditures, that is:
- current expenditures the corporation incurred in the year
- plus or minus adjustments
- plus any qualified expenditures transferred to the corporation under an agreement as outlined in subsection 127(13)
- less any qualified expenditures transferred by the corporation under such an agreement
Similar programs
| Program | Type | Amount | Status |
|---|---|---|---|
| Scientific Research and Experimental Development Tax Incentive Program (SR&ED) | Tax Credit | Investment tax credit at a basic rate of 15% | Open |
