Ontario Innovation Tax Credit

The Ontario Innovation Tax Credit is an 8% refundable tax credit for small to medium-sized companies on eligible R&D expenditures. The budget proposes to change this credit rate as follows.

If a company qualifies for the credit and has a ratio of R&D expenditures to gross revenues that is:

• 10% or less, the company would remain eligible for the 8% credit rate
• Between 10% and 20%, the company would be eligible for an enhanced credit rate that would increase from 8% to 12% on a straight-line basis as the company’s ratio of R&D expenditures to gross revenue increases from 10% to 20%, and
• 20% and above, the company would be eligible for a 12% credit rate. This change applies to eligible R&D expenditures incurred on or after March 28, 2018. The rate changes would be prorated for taxation years straddling March 28, 2018.

For purposes of this calculation, both the gross revenues and R&D expenditures must be attributable to Ontario operations. Gross revenues and R&D expenditures attributable to Ontario operations of associated companies would be aggregated.

Ontario Research and Development Tax Credit

The Ontario Research and Development Tax Credit is a 3.5% non-refundable tax credit on eligible R&D expenditures. The budget proposes that companies that qualify for this credit would be eligible for an enhanced rate of 5.5% for eligible expenditures over $1 million in a taxation year, effective for expenses incurred on or after March 28, 2018. The $1 million threshold would be prorated for short taxation years.

The enhanced credit rate would not be available for businesses where eligible R&D expenditures in the current taxation year are less than 90% of eligible R&D expenditures in the prior taxation year.

The enhanced credit rate would be prorated for taxation years straddling March 28, 2018.