SRED (SR&ED) in Ontario consists of a multitude of programs. Companies do not need to apply for SRED Credits, Ontario Innovation Tax Credit, or the Ontario Research and Development Tax Credit individually. Rather the programs piggyback from one federal SRED application
SRED credits are available in Ontario as a piggyback program to the federal government’s Scientific Research and Experimental Development program. Piggyback means that SR&ED Ontario credits are awarded automatically to a company, once it qualifies for federal SRED funding.
Since harmonization of the SRED program in 2009, the SRED credits Ontario program has been administered entirely by the CRA. As a practical matter, this means that firms receive their SR&ED credits simultaneously with federal ITC SRED credits. Prior to harmonization, credits were administered by the province. This meant that taxpayers had to apply to the province to release SR&ED credits Ontario after the federal ITC credits had been paid out.
The Ontario SR&ED program is somewhat in line with the piggyback SRED programs in other provinces for CCPCs. Ontario’s Ontario Innovation Tax Credit at 8% plus the Ontario Research and Development tax credit at 3.5% compares to BC’s 10% BCITC or Manitoba’s 15% MN SRED tax credit. The program is unfavorable for non-CCPC large, public and/or foreign-owned companies. These firms receive only the Ontario Research and Development tax credit of 33.5%, non-refundable. BC offers 10% provincial credits to non-CCPCs, although the credits are non-refundable. Manitoba and some Maritime provinces offer large firms 15% fully refundable credits in addition to the federal SRED credits which are available in all provinces. Large companies in Manitoba earn almost double the SRED credits of an equivalent large company in Ontario, 30% vs 18.5%.
The Ontario Innovation Tax credit, OITC, is available to CCPCs only in Ontario carrying out SRED qualifying work. The OITC is an 8% credit on qualifying expenditures. The OITC is a refundable credit, meaning that it is paid out in cash to firms, regardless of their profitability or their tax position. The Ontario Innovation tax credit is available on qualifying expenditures up to $3,000,000. Therefore the maximum OITC funding is $240,000 per year.
The Ontario Research and Development tax credit, ORDTC, is a non-refundable credit paid out to all firms which earn qualifying SRED credits in Ontario, both CCPCs and large firms. The ORDTC is a 3.5% credit, reduced from 4.5% in tax years prior to 2016. The Ontario Research and Development tax credit was introduced upon the harmonization of SR&ED Ontario with the main federal SR&ED program in 2009. Harmonizing provisions of the two programs reduced the size of the SRED funding awarded. The ORDTC was introduced to make up for this shortfall in the overall SR&ED Ontario funding.
The Ontario Research and Development tax credit is considered to be government assistance with respect to federal ITC SRED credits. This rule means that a company’s SRED expenditures used to calculate federal ITCs are reduced by the amount of ORDTC credits received. This can be disadvantageous for a nonprofitable CCPC like a start up because its refundable, cash credits are reduced by a non-refundable non-cash credit, the Ontario Research and Development tax credit, which will just be credited to the company for future use. To provide maximum flexibility, Ontario allows companies to waive their ORDTC credits. Waiving ORDTC allows a company to maximize the cash credits it receives, albeit at a slight reduction in total (refunadable and non-refundable) credits received. This mechanism is seen more easily by putting different scenarios into the G6 online SRED calculator, https://www.g6consulting.ca/sred-calculator/. You can easily see the effect on total cash and non cash credits for various scenarios by toggling the “Waive ORDTC credits?” box between “Yes” and “No”.&