In our recap of the Federal budget earlier this year, we highlighted the proposed changes to Scientific Research & Experimental Development (SR&ED) in the Business Income Tax Measures section, and the proposed changes that were mentioned in the budget have now become law (updated Bill C-97).

Canadian-controlled private corporations (CCPCs) or associated groups of such corporations, are entitled to the full enhanced (35 per cent vs 15 per cent) refundable federal tax credit based on up to $3,000,000 of current SR&ED expenditures incurred in a taxation year ("expenditure limit").

Prior to the 2019 federal budget, the eligible expenditure limit for determining the enhanced tax credit was phased out based on two threshold considerations - prior year taxable income and “taxable capital employed in Canada” (essentially the aggregate of equity and debt).

Effective for taxation years ending on or after March 19, 2019, the federal government has eliminated the taxable income threshold as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit.

Accordingly, the $3,000,000 expenditure limit will only be gradually reduced where the CCPC’s “taxable capital employed in Canada” of the previous year exceeds $10,000,000 and is eliminated if that taxable capital exceeds $50,000,000. Note that this threshold must be determined on an associated group basis.

For more information on the impact of this recent change, please contact your SPLLP tax advisor.