What is Bill C-97?
Bill C-97 was introduced by the Government on April 8, 2019. It states implementations of the provisions that were tabled in the Parliament on March 19, 2019. After receiving the second reading of April 30, 2019, it became law by royal assent on June 21, 2019.
The data in the table below keeps track of the progress regarding the outstanding federal draft legislation that in turn amends the ITA (Income Tax Act). It has its impacts on the SR&ED (Scientific Research and Experimental Development) program.
Per the current SR&ED program, expenditures are generally deductible in the year they are incurred and eligible for an investment tax credit (ITC).
This credit is larger and refundable for corporations that are Canadian-controlled private corporations (CCPCs) for the first $3 million in qualifying expenditures.
However, the amount eligible for the enhanced credit is reduced once a CCPC’s taxable income for the previous year reaches $500,000 (before being eliminated at $800,000) and once a CCPC’s taxable capital employed in Canada reaches $10 million (before being eliminated at $50 million).
Per the new law, it will eliminate the use of taxable income as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit.
As a result, small CCPC’s with taxable capital of up to $10 million will benefit from unreduced access to the enhanced refundable SR&ED investment tax credit regardless of their taxable income. As a CCPC’s taxable capital begins to exceed $10 million, this access will gradually be reduced.
|127(10.2)||Subsection 127(10.2) of the Act determines a corporation’s expenditure limit for the purpose of the additional Investment Tax Credit provided in subsection 127(10.1).
The expenditure limit of a corporation for a particular taxation year is an amount from nil to $3 million, as determined by a formula set out in subsection 127(10.2).
The formula has the effect of reducing the expenditure limit to the extent that the taxable income of the corporation and any associated corporations exceeds a threshold amount and to the extent the taxable capital employed in Canada of the corporation and any associated corporations exceeds a threshold amount.
|Subsection 127(10.2) is amended to remove taxable income as a factor in the determination of a corporation’s expenditure limit.
As a consequence, a corporation’s expenditure limit will be reduced based only on the extent to which the taxable capital employed in Canada of the corporation (and any associated corporations) exceeds $10 million, being fully eliminated where it reaches $50 million.
|This amendment applies to tax years ending on or after March 19, 2019 (Budget day).|
|Note, for tax year ends:|
|Before March 19, 2019, the formula for determining the expenditure limit is:|
|($8 million – 10A) × [($40 million – B)/$40 million]|
|A is the greater of|
|(a) $500,000, and|
|(b) the amount that is […] the corporation’s taxable income for its immediately preceding taxation year|
|1. nil, if […] its taxable capital employed in Canada is less than or equal to $10 million;|
|2. in any other case, the lesser of $40 million and the taxable capital employed in Canada […] that exceeds $10 million.|
|On or after March 19, 2019, the formula for determining the expenditure limit is:|
|$3 million × ($40 million – A)/$40 million|
|(a) nil, if its taxable capital employed in Canada is less than or equal to $10 million […];|
|(b) in any other case, the lesser of $40 million and the taxable capital employed in Canada that exceeds $10 million […].|