Get an investment tax credit (ITC)
Use your ITC to reduce income tax payable or get a refund
You may earn an ITC on your qualified SR&ED expenditures for the year. The ITC can be:
- Refundable
- Non-refundable
Who can get an ITC
The following entities may earn an ITC on their qualified SR&ED expenditures:
- Corporations
- Individuals
- Trusts
- Partners in a partnership
Partnerships cannot claim an ITC
Since a partnership is not a taxpayer, it cannot claim an ITC. In general, the ITC is calculated at the partnership level and then allocated to eligible partners in the partnership (individuals, corporations, or trusts).
If you are submitting an ITC claim for SR&ED work carried out by a partnership, review the SR&ED Claims for Partnerships Policy.
Claim a tax credit on Form T2SCH31 or Form T2038-IND
Claimants may calculate their SR&ED ITC using the investment tax credit form for either corporations or individuals.
For corporations
For individuals
Understand ITC rates
Basic rate
The basic ITC rate is 15% on qualified SR&ED expenditures for corporations, individuals, trusts, and partners in a partnership.
Enhanced rate
Most Canadian-controlled private corporations (CCPCs), whether stand-alone or associated, may earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures, up to the expenditure limit.
For tax years that begin after December 15, 2024, eligible Canadian public corporations (ECPCs) may also earn an ITC at the enhanced rate of 35% on qualified SR&ED expenditures, up to the expenditure limit.
What is an ECPC
It is a public corporation, listed on a designated stock exchange, that is resident in Canada. It is not controlled, directly or indirectly in any manner, by one or more non-resident persons. Even if all the shares owned by non-residents were instead owned by a particular person, an ECPC would still not be controlled by that particular person.
Any qualified expenditures in excess of the expenditure limit earn an ITC at the basic rate of 15%.
Determine your expenditure limit
For most CCPCs, the maximum expenditure limit is:
- $3 million for tax years beginning before December 16, 2024
- $6 million for tax years beginning after December 15, 2024
For ECPCs, the expenditure limit is $6 million for tax years beginning after December 15, 2024.
Where there is a consolidated group of ECPCs or an associated group of CCPCs, the expenditure limit must be calculated using the group’s taxable capital or average revenue. The expenditure limit is then allocated among the group members.
The expenditure limit may be reduced for some CCPCs and ECPCs.
Expenditure limit reduction depending on corporation type and tax year
For a CCPC whose tax year begins before December 16, 2024
The expenditure limit begins to decrease when the taxable capital employed in Canada for the previous tax year reaches $10 million and becomes nil starting at $50 million.
For a CCPC whose tax year begins after December 15, 2024
The expenditure limit begins to decrease when the taxable capital employed in Canada for the previous tax year reaches $15 million and becomes nil starting at $75 million.
For tax years beginning after December 15, 2024, a CCPC or a group of associated CCPCs may elect, under certain conditions, to calculate its expenditure limit in the same way as an ECPC.
For an ECPC whose tax year begins after December 15, 2024
The expenditure limit is reduced when the corporation’s average revenue over the previous three fiscal years exceeds $15 million and becomes nil starting at $75 million.
This limit must be shared among the members of the group who are included in the consolidated financial statements.
Other factors that can reduce the expenditure limit include short tax years and multiple tax years that end within the same calendar year.
For more information on how to determine the qualified expenditure limit, see Section 3.1 of the SR&ED ITC Policy.
Allocation of the expenditure limit for associated corporations
If your corporation is associated with one or more CCPCs, you must allocate the expenditure limit among the associated CCPCs.
Associated corporations must use Schedule 49 to allocate the expenditure limit:
For detailed information about associated corporations, review Schedule 9, Related and Associated Corporations.
Refundable ITC
Claimants may be able to have some or all of their SR&ED ITC refunded. First use the ITC to reduce your income tax payable. Then any remaining ITC earned for the year may be refunded.
Most CCPCs earn a refundable ITC calculated at the enhanced rate of 35% on their current and capital qualified expenditures up to their expenditure limit for the tax year. For tax years that begin after December 15, 2024, ECPCs can also obtain a refundable ITC at the enhanced rate of 35%.
Up to the expenditure limit:
- The ITC earned at the 35% enhanced rate on current expenditures is 100% refundable
- The ITC earned on capital expenditures is 40% refundable
If a CCPC is a qualifying corporation, it can obtain a 40% refund of the ITC calculated at a rate of 15% on both current and capital qualified expenditures.
What is a qualifying corporation
A qualifying corporation is a CCPC whose taxable income (or the its taxable income plus that of associated corporations, if applicable) in the previous year was not more than their qualifying income limit for the current year.
For more information on qualifying corporations and their income limit, consult Section 4.2, SR&ED ITC Policy.
Individuals can obtain a refund of 40% of their ITC earned in the tax year at a rate of 15% after any applying ITC to any income tax owing.
Generally, an ITC is earned in the year that the qualified expenditure occurred.
The refund rate depends on the claimant type:
- Corporation
- Individual
- Trust
- Partner in a partnership
The refund rate also depends on whether the ITC was earned on a current expenditure or a capital expenditure. Consult the table below.
Review ITC rates and refund rates
| Type of claimant | ITC rates on SR&ED qualified expenditures up to expenditure limit 1, 2 | Refund rate of ITC earned on current expenditures up to expenditure limit | Refund rate of ITC earned on capital expenditures up to expenditure limit 3 | ITC rates on current SR&ED qualified expenditures over expenditure limit 1, 2 | Refund rate of ITC earned on capital and current expenditures over expenditure limit 3 |
|---|---|---|---|---|---|
| Qualifying corporations (see section 4.2) other than excluded corporations | 35% | 100% | 40% | 15% | 40% |
| Excluded corporations (see section 4.3) | 35% | 40% | 40% | 15% | 40% |
| Canadian-controlled private corporations (CCPCs) other than qualifying or excluded corporations | 35% | 100% | 40% | 15% | N/A |
| Eligible Canadian Public Corporations (ECPCs) 4 | 35% | 100% | 40% | 15% | N/A |
| All other corporations not included above | 15% non-refundable | N/A | N/A | 15% non-refundable | N/A |
| Individuals, certain trusts and unincorporated businesses | 15% | 40% | 40% | 15% | 40% |
| Partners of a partnership 5 | 15% | 40% | 40% | 15% | 40% |
Notes
- For tax years that began before December 16, 2024, the maximum expenditure limit is $3 million per year.
- For tax years that begin after December 15, 2024, the maximum expenditure limit is $6 million per year.
- Capital expenditures made before December 16, 2024, cannot be claimed for SR&ED purposes. This is also applicable to capital expenditures deemed to have been made before December 16, 2024, due to the available for use rules. SR&ED capital expenditures made after December 15, 2024, qualify for SR&ED tax incentives.
- For tax years beginning after December 15, 2024, ECPCs may earn an ITC at the 35% rate.
- Only partners that are qualifying corporations, individuals, and certain trusts may be refunded their allocated ITC at the rate of 40%. The ITC allocated to a member of a partnership that is a corporation, other than a qualifying corporation, cannot be refunded. For more information refer to the SR&ED Claims for Partnerships Policy.
Source: SR&ED ITC Policy, Appendix A
To learn more about refundable ITC for various entities, review Section 4.1, SR&ED ITC Policy.
Non-refundable ITC
Carry back or carry forward an ITC
Claimants that have an unused ITC beyond the amount needed to reduce income tax payable to zero may carry it back up to 3 tax years or carry it forward up to 20 tax years. This lets them use the ITC to reduce their tax payable for other years.
The ITC applied against income tax payable and the refunded ITC reduces the ITC available for carry back or forward.
To learn more about carrying back ITCs, review Section 2.3.2, SR&ED ITC Policy.
Recapture of ITC
If you sell materials transformed or convert them to commercial use, you may have an investment tax credit (ITC) recapture amount you need to report. ITC recapture also applies to capital expenditures for depreciable property acquired before 2014 or after December 15, 2024.
An ITC recapture is triggered if you previously claimed the cost of the sold or converted property as a qualified SR&ED expenditure for ITC purposes. ITC recapture is intended to only allow you to claim tax incentives on the net cost of SR&ED expenditures. Since it is not possible to determine net costs at the start of a project, the recapture takes back all or a portion of the SR&ED ITC you earned by adding the ITC recapture amount to your income tax payable for the year in which the sale or conversion of the property occurs.
You can enter the recapture amount in the ITC form for corporations (Form T2SCH31) or individuals (Form T2038-IND).
For detailed information, review Recapture of SR&ED ITC Policy.
Get support with your ITC
Review the policy for investment tax credits
SR&ED Investment Tax Credit Policy
Review the policy for partnerships
SR&ED Claims for Partnerships Policy
Estimate your ITC
Use the Self-Assessment and Learning Tool (SALT) to estimate the amount of SR&ED investment tax credit you may be able to claim.
SR&ED Self-Assessment and Learning Tool (SALT)
Contact us
Call us if you have any questions about the SR&ED program or calculating an ITC.