Federal Research and Development Tax Incentives

Notes 

(1)  Federal research and development (R&D) ITCs earned in a taxation year after 1997 can 

either be applied against federal taxes payable in that taxation year, refunded to the 

claimant (if applicable), carried forward and claimed in the 20 subsequent taxation years  

or carried back and applied against federal taxes payable in the three prior taxation years.

ITC claims must be identified on a prescribed form (T2 Schedule 31) and filed with the 

Canada  Revenue Agency (CRA) within 12 months of the entity’s filing due date for its 

regular income tax return. The related prescribed forms (Forms T661, T661 Part 2 and 

Schedule 31) must also be filed within this timeframe, to ensure a complete R&D filing.

ITCs claimed in a taxation year are deducted from the entity’s R&D expenditure pool in  

the subsequent taxation year. The current portion of Provincial ITCs, which are considered 

to be government assistance, are deducted from the R&D pool in the taxation year 

claimed. The portion of federal ITCs that related to qualifying Ontario R&D expenditures 

was not deducted from the entity’s R&D pool for Ontario purposes, for taxation years 

ending before 2009. Under the single corporate tax administration system in Ontario 

(applicable for taxation years ending after 2008), Ontario replaced this treatment with a 

4.5% non-refundable Ontario tax credit on R&D expenses incurred in Ontario that qualify 

for the federal ITC.

(2) Expenditures for R&D capital property (including the right to use such property) made after 

2013 are excluded for ITC purposes. 

(3) The expenditure limit is generally $3 million and applies to both current and capital 

expenditures. The expenditure limit must be shared and allocated among associated   

corporations. However, CCPCs that are associated due to a group of unconnected 

investors, such as venture capital investors, do not have to share the limit provided that 

the CRA is satisfied that the group of investors was not formed to gain access to multiple 

expenditure limits.

Federal Investment Tax Credits (ITCs)

1

Type of Entity

Nature of

Expenditure

2

ITC Rate 

on Total 

Expenditures

up to

Expenditure 

Limit

3

Refund

Rate

ITC Rate

on Total

Expenditures

in Excess of

Expenditure 

Limit

3

Refund

Rate

Qualifying CCPCs

4

Current

   35%

  100%

   15%

5

   40%

Capital

35

40

15

5

40

Other corporations

6

Current and 

capital

15

6

—

15

5

—

Individuals and 

unincorporated 

businesses

4

Current and 

capital

15

6

40

15

5

40

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