Ontario Research and Development Tax Credit

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 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.
  • = (4.5% × 152 / 366) + (3.5% × 214 / 366)

    = 3.9153%

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.

Claiming the tax credit

Corporations may claim the tax credit on Schedule 508 and file it with their T2 corporation income tax return.

The tax credit can only be used to reduce the Ontario corporate income tax payable.

Download Schedule 508, Ontario Research and Development Tax Credit

Get the Corporation Income Tax return, known as the T2, from the Canada Revenue Agency

Unused tax credit

Any unused portion of the tax credit may be:

  • carried back three years to tax years ending after December 31, 2008, and/or
  • carried forward 20 years.

Recapture

Recapture rules apply if the property that was included in a previous tax credit claim is being subsequently disposed of or converted to commercial use. The 23.56% rate should continue to be used to calculate recapture.

Administration

The Canada Revenue Agency administers the tax credit on behalf of Ontario through the federal income tax system.

Questions

Contact the Canada Revenue Agency with your questions at 1 800 959‑5525 or 1 800 665‑0354 for teletypewriter (TTY).

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