SR&ED tax credit claim

Refundable vs non-refundable SRED credits

You will certainly want to stay awake for this SRED post.  This is where we talk about you getting paid.

Let us back up for just a second.  Three types of entities can receive SR&ED credits.  Individuals, CCPC’s (small business corporations) and large and/or foreign corporations.

Individuals and large corporations receive non-refundable credits.  Non-refundable means you need a tax balance to turn the credits into cash.  The credits can be carried back three years or saved on account for 20 years until you can cash them, but these non-refundable credits are restrictive.  Especially if your firm has limited, highly variable or no profitability.

Here is a sad SRED story.  When Nortel finally went bankrupt, they had $1.3 Billion of (non-refundable) SRED tax credits on account that they could not cash.  Ugh.  You may have read in the papers about Ericsson, Cisco, Siemens etc. buying Nortel patents, IP, machinery etc. out of bankruptcy.  That was not really what was happening.  These profitable tech corporations were picking over Nortel’s corpse and buying SRED credits for cents on the dollar.

Enough of that.  Are you a CCPC?  Great news.  SRED is tailor-made for you.  You get (almost all) refundable credits.  Refundable credits are cash!  Start-up, no profits? No problem.  Cash SRED.  Perennially unprofitable manufacturing company attempting a turnaround? The Government of Canada has you covered. Cash SRED.

A last piece of good SRED news for CCPCs.  Your credit percentages are much larger than those for large corporations.  Let us take payroll expenses, which are the bulk of most companies’ claims.   You receive over 65 cents of SRED credits for each dollar of qualifying payroll.  Cash.  What about Cisco or Shopify?  Those guys have to make-do with less than 28 cents of SRED credits per dollar of qualifying payroll.

Every SRED claim in Ontario has at least a small component which is non-refundable. This is due to a 3.5% credit called the Ontario Research and Development tax credit, the ORDTC. Back in 2010, the SRED program was standardized between the feds and each of the piggyback r&d programs delivered by the provinces.  This was called harmonization and it was rolled out in each province except Quebec.  In Ontario, the provincial credits were degraded slightly when all the SR&ED definitions were aligned between the CRA and Ontario programs.  To compensate for this, the ORDTC credit was introduced.  For some reason, and I have never seen an explanation, the ORDTC was made a non-refundable credit, even though the main Ontario SRED credit, the OITC has always been refundable.

So, the bottom line for a CCPC is that over 92% of the credits you receive for SR&ED will be fully refundable. Hey CCPC’s.  What are you waiting for? Call g6 today!