Canada's R&D; Leadership in Information & Communications Technologies Significantly Lower R&D; Costs
Two key elements contribute to Canada's advantage as the most
cost-effective location in the G-7 to conduct sophisticated ICT
R&D:
tax incentives to support applied research and experimental
development in Canada, supplemented by investments in R&D
infrastructure, and
the lowest labour costs in the G-7
In the previously mentioned KPMG study, the company reported that
Canada's advantage over the US in ICT R&D was 33%. Salary
costs for scientists and technicians are a major factor in this sector
and Canada has the lowest overall labor costs, including benefits, of
the nine countries studied.
One of the principal forces behind Canada's success in attracting
companies to perform Research and Development is a core tax incentive
program, the Scientific Research & Experimental Development
(SR&ED) Program. The tax incentives flowing from this program are
the most generous among the G-7 nations.
It has been Canada's innovation policy for the past 30 years to
rely extensively on tax incentives to promote R&D. The federal
R&D tax treatment now includes an immediate write-off of both
current costs and R&D machinery and equipment costs and a 20 per
cent tax credit. The rate of R&D tax credit increases to 35 per
cent for small companies.
The tax incentives significantly reduce the net cost of doing R&D
in Canada and are designed to encourage risk-taking in this important
area. The net after-tax cost of R&D expenditures can be less than
0.44 cents for each dollar spent, depending on the type of corporation
and the province where the R&D is conducted. Additional
information on the federal system of R&D tax incentives can be
found on the Canada Customs and Revenue Agency web site at http://www.ccra-adrc.gc.
ca/taxcredit/sred/menu-e.html.
The federal R&D tax provisions have been generously strengthened
by provincial R&D tax incentives. Most provincial and territorial
R&D programs follow the federal legislation and are based on a
percentage of the SR&ED qualified expenditures incurred in the
year. The exception is Quebec's R&D Salaries Tax Credit
program which is based on expenditures incurred in the year for
salaries and subcontracts for R&D. The following is an outline of
the entitlements under provincial programs.
Manitoba
Tax deduction: 100% SR&ED current and capital expenditures
Tax credit: 15% non-refundable for R&D done in Manitoba
Saskatchewan
Tax deduction: 100% SR&ED current and capital expenditures
Tax credit: 15% non-refundable for R&D done in Saskatchewan
New Brunswick
Tax deduction - 100% SR&ED current & capital expenditures
Tax credit - 15% fully refundable, for R&D done in New Brunswick
Newfoundland
Tax deduction - 100% SR&ED current and capital expenditures
Tax credit - 15% fully refundable for R&D done in Newfoundland,
SR&ED expenditures not reduced by government or non-government
assistance
Nova Scotia
Tax deduction - 100% SR&ED current and capital expenditures
Tax credit - 15% fully refundable for R&D done in Nova Scotia,
SR&ED expenditures not reduced by government or non-government
assistance.
Ontario
Tax deduction - 100% SR&ED current and capital expenditure
Federal R&D tax incentives can be excluded from provincial tax.
Tax credits - Innovation Tax Credit: 10% for small companies, fully
refundable. Business Research Institute Tax Credit: 20% for R&D
contracted to Ontario-based research institutes, fully refundable.
Quebec
Tax deductions - 100%, SR&ED current and capital expenditures.
Tax credit on R&D wages (all fully refundable) - 35% for small
firms (assets under $25 million), 35%-17.5% for medium firms (assets
$25-50 million), 17.5% for large firms (assets over $50-million)
17.5%-35% for contract R&D
provincial income tax holiday for foreign researchers
British Columbia
Tax deduction - 100% SR&ED current and capital expenditures
Tax credit
10% refundable for small firms for R&D done in British
Columbia
10% non-refundable for large firms for R&D done in
British Columbia