The recently released Ontario 2016 Budget has made significant reductions to the Ontario Innovation Tax Credit (OITC), and the Ontario Research and Development Tax Credit (ORDTC). These changes will affect eligible projects costs incurred in taxation years ending on or after June 1, 2016.

OITC

The OITC rate was reduced from 10% to 8%, with the following implementation rates:

  • For tax years ending before June 1, 2016, the tax credit will remain 10%.
  • For tax years ending on or after June 1, 2016 that do not include May 31 2016, the tax credit will be 8%.
  • For tax years that end on or after June 1, 2016 that include May 31, 2016 the tax credit amounts to the sum of:
    • 10% multiplied by the ratio of the number of days in the year that are before June 1, 2016 to the total number of days in the year; and
    • 8% multiplied by the ratio of the number of days in the year that are after May 31, 2016 to the total number of days in the year.

ORDTC

The ORDTC rate was reduced from 4.5% to 3.5%, with the following implementation rates:

  • For tax years ending before June 1 2016, , the tax credit will remain 4.5%
  • For tax years ending on or after June 1, 2016 that do not include May 31 2016, the tax credit will be 3.5%.
  • For tax years that end on or after June 1, 2016 that include May 31, 2016 the tax credit amounts to the sum of:
    • 4.5% multiplied by the ratio of the number of days in the year that are before June 1, 2016 to the total number of days in the year; and
    • 3.5% multiplied by the ratio of the number of days in the year that are after May 31, 2016 to the total number of days in the year.

Reinvesting Savings

The province of Ontario has committed to reinvest the savings from the proposed tax changes into target sector investments including:

  • $50 million investment over five years in research at the Perimeter Institute;
  • $35 million investment over five years for establishing the Advanced Manufacturing Consortium; and
  • $20 million investment over three years for innovation projects in partnership with colleges.

Recent Federal Reductions to SR&ED Program

These reductions in the provincial R&D tax credit rates follow major reductions to the federal SR&ED tax credit program that were fully implemented in 2014. These include:

  1. Removal of capital from the expenditure base (for capital expenditures incurred in 2014).
  2. Reduction of the proxy to calculate overhead costs from 65% to 60% for 2013 and to 55% after 2013 (to be fully phased in as of January 1, 2014).
  3. Reduction of contract payment eligibility to 80% of the payment (effective January 1, 2013).
  4. Reduction in the General Investment Tax Credit rate from 20% to 15% (effective January 1, 2014). This will not affect organizations that qualify for the enhanced rate of 35%.