The Ontario research and development tax credit is a deductible for Ontario corporations where you may claim eligible expenditures from any scientific research or experimental development carried out in Ontario within 12 months of your tax return due date.
This non-refundable tax credit is an investment tax credit in the province of Ontario. This tax credit is equal to 3.5% of any eligible expenses incurred because of the research or development of programing and implementation for your Ontario corporation. If this credit rate changes during a taxable year, you need to calculate the rate by its corresponding days.
The goal of this tax credit is to reduce Ontario corporate income tax through investment opportunities. This credit can be carried back up to 3 years from your current tax year and carried forward for up to 20 years.
Who is eligible for the Ontario research and development tax credit?
The corporations who are eligible for the Ontario research and development tax credit must not be exempt from their annual income tax return for the present year’s assessment. These corporations must also have a permanent establishment in Ontario.
All eligible expenses for the research and development tax credits are expenditures that are:
- Ascertained by a corporation with a permanent address in Ontario and where the programming is facilitated by an Ontario corporation
- Reduced or minimized by a third-party assistance or contract payment or are entitled to be reduced or minimized by a third-party assistance or contract payment within the corresponding tax year
- Expenses that are incurred for the sole purpose of research, development, or scientific research and experimental development
How to claim the Ontario research and development tax credit
All corporations must file Form T661 and Schedules 508, 31 and 5 as supporting documents to their T2 corporate income tax return.
Schedule 508 is the document where you claim both expenses and income incurred because of scientific research and development. Using Parts 1 and Parts 2, you can calculate the current expenditure pool to find all available deductions for Parts 3 and 4.
Use Form T661, the Scientific Research and Experimental Development (SR&ED) Expenditures Claim form, for all technical information on eligible research or development that you wish to claim.
Schedule 31 is an additional tax document that enables corporations to detail expenses and claim income to calculate any repayment sums or tax credits available. Schedule 31 is an overview supporting document where all investment tax credits are claimed.
On Schedule 5, using line 277 and 416, you claim the amount of recapture or deductible calculated of the Ontario Research and Development Tax credit. This form is used to indicate permanent addresses and multiple locations of corporations in the province of Ontario.
Recapture of the research and development tax credit
If you are a corporation that has disposed of or obtained a property through an amalgamation in relation to any use of research or development in Ontario, you may need to file a report for recapture. This is done using Schedule 508 to assess the expenses of the tax credit because of the acquisition of property.
Trust T2inc Ontario for your corporate tax assessment
Your Ontario business should file T2 corporate tax returns on time every year. Depending on the nature of your business, there are many deductions available to you. From research and development to scientific and experimental development, there are tax credits you can count on.
Trust the tax experts at T2inc to help you assess and file your T2 corporate tax return. Contact us today for a simple tax corporate solution that will give you peace of mind.