In the Ontario budget released yesterday, March 28, 2018, the Ontario government has decided, contrary to the opinions of Finance Canada, that increased emphasis should be placed on SR&ED and the innovation in Ontario.
In an effort to increase the number of highly skilled jobs in Ontario, the Liberal government has put forth two proposals. The first proposal increases the refundable Ontario Innovation Tax Credit from 8% to 12% for companies that spend at least 20% of their gross Ontario revenues on qualifying SR&ED expenditures in Ontario. There is also an increase for those companies that spend between 10% and 20% of their revenues on qualifying expenditures. These companies will receive a credit between 8% and 12% depending on their level of spending. Companies that spend 10% or less of their revenues on qualifying SR&ED expenditures will still receive the current 8% refundable tax credit. This represents a clear effort by Ontario to keep innovative companies in the province and promote further innovation.
The second proposal increases the Ontario Research and Development Tax Credit from 3.5% to 5.5% for qualifying expenditures in excess of $1 million dollars. In order to qualify for this enhanced rate, the company’s qualifying expenditures in the particular year must be at least 90% of the prior year’s qualifying expenditures. This proposed change is in an effort to encourage more medium and large sized companies to open operations and perform SR&ED in Ontario.
These credit changes are a step in the right direction for the province as a whole as it will serve to increase employment in the knowledge based economy; a market that is actively being sought not just by Ontario, but by all provinces and countries, as it is jobs in these industries that are seeing the highest levels of growth. Add to this the fact that these jobs tend to be higher paying, and you can see the benefit not only to the company receiving the credits but also to the provincial economy. This benefit is realized through an increase in tax revenues from higher paying jobs. Citizens of Ontario will see the benefit through increased spending by these individuals on housing, vehicles, and other consumables.
However, one problem still remains as these credits are administered by the Federal government through the CRA as part of its SR&ED program. Although this should not typically be an issue, in recent years the approaches implemented at the CRA have become more cumbersome on the claimants. As a result of this cumbersome process, the number of SR&ED claims being sent to second review, appeals, and tax court have increased in recent years. If only it were possible for the Ontario Liberals to streamline this process, then we might be encouraging business innovation from all angles.