The Canadian Department of Finance has drafted legislative proposals, released August 14, that include the following changes to the SR&ED program:
1. Removal of capital from the expenditure base (for capital expenditures incurred in 2014).
Effective January 1, 2014, capital expenditures cannot be claimed. To be claimable for capital expenditures before 2014, the expenditure must be proven to be “available for use” before January 1, 2014. Shared-use equipment acquired after 2013 will no longer qualify for partial ITC.
2. Reduction of the proxy to calculate overhead costs from 65 percent to 60 percent for 2013 and to 55 percent after 2013 (to be fully phased in as of January 1, 2014).
Under the current proxy method to capture overhead expenditures, directly-engaged labour is multiplied by 65% to determine the claimable overhead costs. The 65% rate will drop to 60% on January 1, 2013, and to 55% on January 1, 2014. The traditional method to capture overhead expenditures is not affected.
3. Reduction of contract payment eligibility to 80 percent of the payment (effective January 1, 2013).
Effective for expenditures made after December 31, 2012, the eligibility of payments to contracts and third-party payments to approved research entities will be reduced from 100% to 80%.
4. Reduction in the General Investment Tax Credit rate from 20 percent to 15 percent (effective January 1, 2014).
The ITC rate for large corporations will e reduced from 20% to 15% for taxation years that end after 2013. This will not affect organizations that qualify for the enhanced rate of 35 percent.