The Ontario 2016 Budget is Reducing Your SR&ED Rates

By: BeneFACT Marketing in Small Business, SR&ED

March 7th, 2016

The Ontario 2016 Budget was announced to the legislature and Ontarians on February 25, and with it comes some adjustments to the SR&ED program.

Two of the Ontario provincial SR&ED tax credits are being reduced for taxation years ending on or after June 1, 2016. The Ontario Innovation Tax Credit (OITC) is being decreased from 10% to 8%. The Ontario Research and Development Tax Credit (ORDTC) is being reduced from 4.5% to 3.5%. These changes will take effect  for corporate taxation years ending on or after June 1, 2016. The rate reductions will be prorated if your fiscal year end straddles June 1, 2016 (ex. Dec 31, 2015 fiscal year end).

What does this mean for your next SR&ED claim? Here’s a look at what the changes look like in practice.

Before the rate reduction

After the rate reduction

Labour $100,000 Labour $100,000
Prescribed Proxy* (55%) $55,000 Prescribed Proxy* (55%) $55,000

Total Expenditures

$155,000

Total Expenditures

$155,000

OITC @ 10% $15,500 OITC @ 8% $12,400
ORDTC @ 4.5% $6,278 ORDTC @ 3.5% $4,991
Federal ITC @ 35% $46,628 Federal ITC @ 35% $48,163

Total Credits

$68,405

Total Credits

$65,554

*Prescribed proxy is calculated as overhead on eligible labour expenditures.

**The above calculations are applicable for CCPCs with the full $3 million expenditure limit available.

There is some debate as to why cuts to this program occurred. SR&ED has been one of the foremost drivers for growth in business innovation, and it’s not a likely popular decision among business owners. A Globe and Mail article with the headline: “Ontario budget 2016: How Kathleen Wynne is taking from the richer to give to the poorer” says “Tax credits that predominantly benefited middle-class and upper-income families are disappearing. That money is largely being shifted toward programs targeted at low-income households.” Most commentary on the budget has been surrounding the impact to individual citizens rather than businesses, but it seems as though Wynn has taken similar approaches to cuts in both the private and public sector.

Wynne’s budget will increase funding to organizations like the Ontario Centres of Excellence to offset the effect these rate reductions will have on the business community.

BeneFACT is Canada’s largest independent SR&ED consulting firm. Call us at 1-855-TAX-BACK (829-2225) to start collecting R&D tax credits today.