Get an investment tax credit (ITC)

On this page

Use your ITC to reduce income tax payable or get a refund

You may earn an investment tax credit (ITC) on your qualified SR&ED expenditures for the year. The ITC can be:

Who can get an ITC

The following entities may earn an ITC on their qualified SR&ED expenditures:

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 a partnership claim for SR&ED, 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 an ITC on qualified SR&ED expenditures up to a maximum threshold of $3 million (expenditure limit) at the enhanced rate of 35%.

Any qualified expenditures beyond the expenditure limit earn an ITC at the basic rate of 15%.

Determine your expenditure limit

The expenditure limit for most CCPCs is $3 million. However, some large CCPCs may have a reduced expenditure limit.

What is the reduced expenditure limit

The limit starts to decrease when a CCPC’s taxable capital employed in Canada for the previous tax year reaches $10 million. The limit becomes zero starting at $50 million.

Other factors can also reduce the ITC expenditure limit for CCPCs, including short tax years and having multiple tax years within one calendar year.

For detailed information on determining expenditure limits, review Section 3.1, SR&ED ITC Policy.

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. If there is no tax payable, the ITC earned for the year may be refunded.

Most CCPCs can earn a refundable ITC calculated at the enhanced rate of 35% on qualified expenditures up to their expenditure limit for the tax year. Individuals may get a partial refund of their ITC earned at 15%. If a CCPC is a qualifying corporation, 40% of the ITC earned at 15% can be refunded.

What is a qualifying corporation

A qualifying corporation is a CCPC whose taxable income (or total taxable income if associated with another corporation) in the previous year was not more than their qualifying income limit for the current year.

For detailed information on qualifying corporations and their income limit, review Section 4.2, SR&ED ITC Policy.

Generally, an ITC can only be refunded in the year that the qualified expenditure occurred.

The refund rate varies depending on if the claimant is a corporation, an individual, a trust, or a partner in a partnership.

Review ITC rates and refund rates
Review ITC rates and refund rates
Claimant ITC rates up to expenditure limit Refund rate ITC rates over expenditure limit Refund rate
CCPCs that are qualifying corporations other than excluded corporations 35% 100% 15% 40%
CCPCs that are excluded corporations 35% 40% 15% 40%
CCPCs other than qualifying or excluded corporations 35% 100% 15% 0%
All other corporations not included above 15% 0% 15% 0%
Individuals, certain trusts and unincorporated businesses 15% 40% 15% 40%
Partner in a partnership 15% 40%  15% 40% 

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 who have an unused ITC beyond the amount needed to reduce income tax payable to zero may carry it back 3 years or carry it forward 20 years. This lets you use the credit to reduce your tax payable for other years.

A refunded ITC will reduce the credit 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.

An ITC recapture is triggered if you previously claimed the cost of the sold or converted property as an SR&ED expenditure for ITC purposes. The recapture is intended to make sure that you only claim SR&ED tax incentives on the net costs of conducting SR&ED work.

Since it’s not always possible to determine net costs at the start of a project, the recapture reverses all or a portion of the SR&ED ITC you earned by adding an amount to your tax payable for the year in which the sale or conversion of the property takes place.

You calculate and can report the recapture amount when you complete the ITC form for either corporations (Form T2SCH31) or individuals (Form T2039-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.

Contact us

Page details

Date modified: