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Provincial R&D Incentives
The provinces have never managed to agree on a standard R & D incentive. The only thing they seem to agree on is that, if the neighbouring province has an incentive policy, they need one as well. But like other things Canadian, there are exceptions-neither PEI nor Alberta has a separate provincial incentive. Perhaps Alberta's low provincial tax rate is incentive enough.
R & D performers must remember to claim the relevant provincial credit for each of the provinces in which they perform SR & ED. It is also important to know the provincial strategy with regard to refundability and the potential to renounce a provincial credit.
In brief, a provincial tax credit is taxable federally, and reduces the expenditure base on which the federal credit is earned. Therefore, if a provincial tax credit is renounced, the federal credit is increased. This may be important in a loss year if a provincial credit is nonrefundable. As can be seen, the failure to claim these provincial credits in an optimal way denies a taxpayer a substantial portion of the benefit.
The table below summarizes the provincial credit rates and options.
Provincial incentives comprise three main groups: (1) refundable tax credits, (2) non-refundable tax credits, and (3) incentive deductions.
Refundable tax credits result in a refund whether or not the entity is taxable, while non-refundable tax credits may be claimed only against a provincial tax liability.
Incentive deductions give a deduction of over 100% of the expenditure as an additional incentive.
Refundable tax credit |
Tax credit rate |
Expenditure limit |
Renounceability |
Eligibility notes |
| British Columbia | 10% | First $2M | Yes | CCPCs onlya |
| Yukon | 15% | None | No | All corpsb |
| Ontario | 10% | First $2M | Yes | All corps up to $50Mc of taxable capital |
| Quebec | 20% / 40%d | None | No | Special rules apply: computed on labour only |
| Nova Scotia | 15% | None | No | All corps |
| Newfoundland | 15% | None | No | All corps |
Non-refundable tax credit |
Tax credit rate |
Expenditure limit |
Renounceability |
Eligibility notes |
| British Columbia | 10% | If not CCPC, no limit, If CCPC, over $2M |
Yes | All corps |
| Saskatchewan | 15% | None | Yes | All corps |
| Manitoba | 15% | None | Yes | All corps |
| New Brunswick | 10% | None | Yes | All corps |
Incentive deductionse
Ontario (now suspended)
Quebec (now repealed)
a Canadian-controlled private corporations.
b Introduced June 30, 2000.
c After May 5, 1999, all corporations are eligible for the Ontario 10% refundable credit if their taxable capital is less than $50 million.
Previously, only CCPCs were eligible for the 35% credit.
d 20% on labour payments only by all taxpayers except if (1) paid to a qualified entity by any business 40%, and (2) a qualified small
business (SMB) made the labour payments 40%.
eThe federal government moved to tax the deduction incentives. Both provinces that introduced them-Quebec and Ontario-have since
repealed or suspended this incentive. The Ontario superallowance deduction became taxable federally in the February 27, 2001 federal budget.
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