Canadian Controlled Private Corporation (CCPC)

The government of Canada, along with the provinces and territories, offers the basic ITC rate, composed of investment tax credits (ITC), and also offers qualifying corporations an enhanced ITC rate. A CCPC with a taxable income that was not more than the qualifying income limit in the previous tax year is eligible for the enhanced ITC rate, and may also be eligible for enhanced and/or additional credits from their province or territory. *

As an example, ABC Inc. (ABC) is a qualifying corporation, and XYZ Inc. (XYZ) is not a qualifying corporation. Both companies have a December fiscal year end and are located in Ontario. During their 2017 year both companies conduct activity with identical qualified expenditures of $290,000 for wages, $5,000 for subcontractors, and $26,000 for wasted materials. Both elected to use the prescribed proxy amount(PPA) for overhead expenditures.

As aqualifying corporation, ABC Inc. is entitled to the enhanced SR&ED investment tax credit rate from the Government of Canada, and is also entitled to both the Ontario innovation tax credit (OITC) and the Ontario research and development tax credit (ORDTC) from the Government of Ontario. ABC has two options.

In option A, they receive:

1. OITC in the amount of 8% of qualified expenditures (from the province of Ontario as a refundable credit) followed by


2. ORDTC in the amount of 3.5% of qualified expenditures (from the province of Ontario as a non-refundable credit) followed by


3. ITC in the amount of 35% of qualified expenditures (from the government of Canada as a refundable credit)

With this option ABC will receive ORDTC (non-refundable credit from the province of Ontario) in the amount of $15,440 and will receive OITC (from the province of Ontario) and ITC (from the Government of Canada) with a combined refundable benefit (cash amount) of $187,355 for a total benefit of $202,795

In option B, they receive:

1. OITC in the amount of 8 % of qualified expenditures (from the province of Ontario, as a refundable credit) followed by


2. ITC in the amount of 35% of qualified expenditures (from the government of Canada, as a refundable credit)

With this option ABC has opted to waive the entire ORDTC (non-refundable credit from the province of Ontario) and will receive OITC (from the province of Ontario) and ITC (from the Government of Canada) with a combined refundable benefit (cash amount) of $192,759

For every fiscal year ABC has the option of waiving ORDTC in part or in full.

XYZ is not a qualifying corporation and is therefore entitled to the basic SR&ED investment tax credit rate from the Government of Canada and the Ontario research and development tax credit (ORDTC) from the Government of Ontario.

XYZ is entitled to:

1. ORDTC in the amount of 3.5% of qualified expenditures (from the province of Ontario, as a non-refundable credit) followed by


2. ITC in the amount of 15% of qualified expenditures (from the government of Canada, as a non-refundable credit)

XYZ will receive ORDTC (non-refundable credit from the province of Ontario) in the amount of $16,783 and the basic SR&ED investment tax credit (non-refundable credits from the government of Canada) in the amount of $69,408 for a combined benefit of $86,190 in non-refundable credits.

Many small companies, who have qualified for the enhanced ITC rate, have thus received significant annual capital injections that have enabled them to continue their SR&ED work.

While this often places smaller firms at an advantage for SR&ED claims, companies of all sizes and sectors that put a diligent effort into complying with the CRA's SR&ED program standards can realize extremely valuable benefits. This is particularly true because when requirements are carefully studied and applied, a high quality project framework is created that flows from conception through to design, development, testing, and project conclusions, often improving many aspects of the experimental work.