A recent webpage released by the Government of Canada’s Invest in Canada initiative touted the benefits that foreign companies have of investing in Canada. Specifically, a foreign company can take advantage of a 20% non-refundable tax credit through forming a Canadian subsidiary, which can significantly reduce or eliminate Canadian taxes payable. Alternatively, a foreign company can also set up a Canadian-controlled private corporation (CCPC), as long as the foreign company owns less than 50% of the company’s voting shares. A CCPC with taxable incomes of under $500,000 can receive a refundable tax credit of 35% of eligible SR&ED expenditures, to a maximum of $3 million of expenditures per year.
A breakdown of the various SR&ED scenarios is outlined in the table below.
|SR&ED expenditures||Credit Rate||% Refund||Refundable Tax Credit (Cash Back)||Non-Refundable Tax Credit (Reduce Taxes)|
|Small Canadian-controlled Private Corporations||First $3 million||35%||100%||$1,050,000||–|
|Remaining $2 million||20%||40%||$160,000||$240,000|
|Large Public or Foreign-controlled Corporations||First $3 million||20%||–||–||$600,000|
|Remaining $2 million||20%||–||–||$400,000|