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June 2024 Edition

▶️ Understanding SR&ED Credits in Canada

The Scientific Research and Experimental Development (SR&ED) program is a tax incentive designed to encourage Canadian businesses to conduct research and development (R&D). Here’s a quick rundown on what SR&ED credits are, who is eligible, what expenses qualify, and how the credits are calculated.

What are SR&ED Credits?

SR&ED credits are federal tax incentives that reward businesses for investing in R&D. These credits can reduce your tax payable or provide refunds.

Eligibility

To qualify for SR&ED credits, your business must be engaged in R&D activities in Canada that aim to:

- Advance scientific knowledge.

- Solve technological challenges.

- Improve or create new products, processes, or materials.

Eligible Expenses

Expenses that can be claimed under the SR&ED program include:

- Salaries and wages of employees directly involved in R&D.

- Cost of materials used in the R&D process.

- Overhead expenses related to R&D activities.

- Contract payments to third parties conducting R&D on your behalf.

Credit Calculation

The amount of SR&ED credits your business can claim varies based on your company's size and structure:

- Small businesses can claim up to 35% of eligible R&D expenditures.

- Larger companies can claim a non-refundable credit of 15%.

For instance, if your small business spends $100,000 on eligible R&D, you could potentially receive up to $35,000 back in tax credits.

Understanding and claiming SR&ED credits can be complex, but the financial benefits make it worthwhile.

Feel free to reach out if you have any questions or need assistance with your SR&ED claims!

▶️ The Co-operative Education Tax Credit in Ontario

Ontario offers the Co-operative Education Tax Credit (CETC) to encourage businesses to hire students from co-op programs. Here's a brief overview of what the CETC is, who is eligible, what expenses qualify, and how the credits are calculated.

What is the CETC?

The Co-operative Education Tax Credit is a refundable tax credit available to employers who hire students enrolled in a recognized post-secondary co-op program. This credit helps businesses offset the costs of hiring and training co-op students.

Eligibility

To qualify for the CETC, your business must:

- Be a corporation subject to Ontario income tax.

- Employ students in a co-op placement that is part of a recognized co-op program.

- Have an agreement with an eligible educational institution outlining the co-op placement.

Eligible Expenses

Expenses that can be claimed under the CETC include:

- Salaries and wages paid to co-op students during their placement.

- Fees paid to the educational institution for the co-op program.

Credit Calculation

The amount of CETC your business can claim depends on the wages paid to co-op students:

- Corporations can claim 25% of eligible expenses, or up to 30% for small businesses.

- The maximum credit is $3,000 per student per qualifying work term.

For example, if your small business pays a co-op student $10,000 during their placement, you could claim up to $3,000 in tax credits.

The CETC not only helps businesses reduce hiring costs but also supports the development of future talent.

If you have any questions about the CETC or need help with your claim, feel free to reach out!

▶️ Understanding the Small Business Deduction (SBD) in Canada

The Small Business Deduction (SBD) is a key tax incentive for Canadian-controlled private corporations (CCPCs). Here’s a quick overview of what the SBD is, who is eligible, how it works, and its benefits.

What is the SBD?

The SBD is a federal tax deduction that reduces the corporate income tax rate on the first $500,000 of active business income earned by a CCPC. This deduction helps small businesses retain more of their earnings, which can be reinvested into the business for growth and development.

Eligibility

To qualify for the SBD, your business must:

- Be a Canadian-controlled private corporation (CCPC).

- Earn active business income in Canada.

- Have taxable capital employed in Canada not exceeding $15 million.

How it Works

The SBD reduces the tax rate on the first $500,000 of active business income from the standard federal corporate tax rate of 15% to a lower rate. As of 2024, the federal small business tax rate is 9%. This reduced rate also applies to the provincial portion of corporate taxes, although rates vary by province.

Benefits

The SBD provides several benefits for small businesses:

- Lower Tax Burden: By reducing the tax rate on the first $500,000 of active business income, the SBD allows businesses to retain more profits.

- Increased Cash Flow: The savings from the lower tax rate can be used to invest in business operations, hire new employees, or expand services.

- Encourages Growth: The deduction incentivizes businesses to grow and increase their active business income while staying within the CCPC criteria.

Example

For example, if your CCPC earns $400,000 in active business income, you would benefit from the federal small business tax rate of 9% on this income, significantly lower than the general corporate tax rate of 15%. This results in substantial tax savings that can be reinvested in your business.

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