What’s New With R&D in the 2018 Ontario Budget?

At the end of March, the Ontario government proposed the 2018-2019 budget that contained new measures for the R&D tax credit programs: The Ontario Innovation Tax Credit (OITC) and the Ontario Research and Development Tax Credit (ORDTC).

Proposed Changes to the OITC

The OITC is a refundable tax credit on eligible R&D expenditures for small and medium-sized businesses (SMBs).

• Increase of the refundable rate from 8.0% to 12.0%.
• New rates only apply to eligible expenditures incurred on or after March 28, 2018.
• New rates are prorated for companies with a fiscal year ending after March 28, 2018.
• Eligible expenditures and gross revenues must be incurred in Ontario.

Eligible companies must also adhere to a strict ratio of R&D expenses and top-line revenue.

Should the company’s eligible R&D expenses account for:

• Less than or equal to 10.0% of gross revenue, then the original 8.0% rate applies.
• 10.01% to 19.99% of gross revenue, then the original 8.0% rate increases proportionately to 12.0%.
• Greater or equal to 20.0% of gross revenue, the new enhanced 12.0% rate applies.

Proposed Changes to the ORDTC

The ORDTC is a non-refundable tax credit on eligible R&D expenditures for large corporations.

• Enhancement of the non-refundable rate from 3.5% to 5.5%.
• Enhanced rates only apply to eligible expenditures above a $1 million threshold.
• New rates only apply to eligible expenditures incurred on or after March 28, 2018.
• New rates are prorated for companies with a fiscal year ending after March 28, 2018.

Also to qualify for the new enhanced rate of 5.5%, a company must have at least 90% of the prior year’s eligible R&D spend in the current taxation year. Otherwise, companies will defer to the basic 3.5% non-refundable rate.

How R&D Partners Can Help?

If you have questions or comments about the OITC or the ORDTC, please do not hesitate to contact Alex Bramos at 1-800-500-7733  for more information.