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 | |
| Total | $1,210,000 | $240,000 | |||
| Large Public or Foreign-controlled Corporations | First $3 million | 20% | – | – | $600,000 |
| Remaining $2 million | 20% | – | – | $400,000 | |
| Total | – | $1,000,000 | |||
