An understanding of the operation of this tax credit system can be beneficial to economic developers in attracting innovative and technology-based industry to Canada. The incentives are generally more generous, and earned on a larger set of activities than in the U.S., giving Canada a large competitive advantage. An awareness of these credits may easily bring additional millions of dollars into a community, and offers an attractive return for the time invested by companies to document and claim their activities. The federal tax credit can be either 20 per cent or 35 per cent of costs incurred, depending on the company tax situation. There are additional provincial incentives too, and a small Ontario-based company may earn a total of 41.5 per cent in tax credits from both levels of government.
Incentives are available in most other provinces as well.
These credits can be applied against tax otherwise payable, or frequently credits can generate a cash refund even where a company has never paid any income tax. Even though this incentive program is fairly generous on an international scale, existing companies are failing to utilize this credit to its full benefit. There are a large number of companies either unaware of the benefits of this program or not claiming for their eligible activities. A testing or experimental process is involved. In addition, an overhead amount of 65 per cent of the direct labour is allowed to cover the cost of the building, offices, and support staff, etc.