In the realm of fostering innovation and research, legislative changes play a pivotal role. Bill C-97, introduced in 2019, has implications for the Scientific Research and Experimental Development (SRED) program, a crucial driver of Canadian innovation. This article delves into the provisions of Bill C-97, exploring its impact on the SRED landscape and how businesses can navigate these changes.
Understanding Bill C-97 and SRED
Bill C-97, unveiled by the Government on April 8, 2019, signifies an evolution in legislation aimed at enhancing the SR&ED program. This legislation, which gained royal assent on June 21, 2019, introduces changes that have a significant bearing on the tax incentives provided to innovative businesses engaging in research and development.
The SR&ED program provides an investment tax credit (ITC) to eligible businesses for qualifying expenditures. This credit holds greater value for Canadian-controlled private corporations (CCPCs) with the first $3 million in qualifying expenses. However, the enhanced credit amount diminishes as a CCPC’s taxable income and taxable capital exceed specific thresholds.
SRED Legislative Changes Bill C-97’s Impact
Bill C-97 brings about a fundamental change by removing taxable income as a determinant for a CCPC’s annual expenditure limit for the enhanced SRED tax credit. This alteration empowers small CCPCs with taxable capital of up to $10 million to access the enhanced refundable SRED ITC without income-based limitations. As taxable capital surpasses $10 million, the access to enhanced credits gradually diminishes.
Bill C-97 introduces amendments that reshape the SRED landscape. Notably, subsection 127(10.2) of the Income Tax Act is revised to eliminate taxable income as a factor in determining a corporation’s expenditure limit. Instead, the focus shifts to taxable capital employed in Canada. The formula for calculating the expenditure limit undergoes modification to ensure equitable access to SR&ED incentives.
For tax years ending on or after March 19, 2019 (Budget day), the revised formula for determining the expenditure limit is $3 million × ($40 million – A)/$40 million. Here, A represents taxable capital employed in Canada. This shift underscores the commitment to fostering innovation without undue restrictions, aligning with the evolving landscape of research and development.
Conclusion
Bill C-97’s provisions mark a strategic shift in the SRED program, prioritizing taxable capital over taxable income as a determinant for accessing enhanced tax credits. This evolution aims to ensure that innovation remains unhindered by financial thresholds, encouraging businesses to continue their research endeavors. As Canadian businesses navigate these legislative changes, it’s prudent to seek expert guidance from institutions like EVAMAX Group, enabling a seamless transition into the updated SRED landscape.
[Sources: Government of Canada, Canada Revenue Agency]
