Tax credits are a great way for Canadian corporations to reduce their taxes and encourage investment in research, development and other business activities. Navigating the world of tax credits can be tricky, but a tax accountant Vancouver would be able to help you. Here’s an overview of the main tax credits available to Canadian corporations, how to get them and what’s in it for you.
What are Tax Credits?
A tax credit is a reduction in the amount of taxes a corporation owes to the government. Unlike tax deductions which reduce taxable income, tax credits reduce the amount of taxes payable. There are two types of tax credits: non-refundable and refundable. Non-refundable tax credits can only reduce the tax liability to zero, while refundable tax credits can result in a refund if they exceed the corporation’s tax liability. Seek advice from a tax accountant Victoria on the tax credits that are applicable to your business. Below are some common tax credits for Canadian corporations.
Common Tax Credits for Canadian Corporations
- Scientific Research and Experimental Development (SR&ED) Tax Credit – The most popular tax incentive for Canadian corporations is the SR&ED tax credit. This program encourages businesses to invest in research and development by offering both federal and provincial credits. Eligible companies can claim a tax credit for a portion of their R&D expenditures, including wages, materials and overhead costs. Federal SR&ED credit is 35% for Canadian-controlled private corporations (CCPCs) and more depending on the province.
- Investment Tax Credit (ITC) for Clean Energy – Canadian corporations investing in clean energy technologies may be eligible for the Investment Tax Credit (ITC). This credit encourages businesses to adopt energy-efficient technologies by providing a percentage of the investment in the form of a tax credit. This can help offset the cost of implementing energy-saving measures making it a good option for businesses looking to reduce their carbon footprint.
- Accelerated Capital Cost Allowance (ACCA) – The ACCA program allows corporations to deduct the cost of certain capital assets at an accelerated rate. This program is designed to encourage businesses to invest in capital expenditures like machinery, equipment and buildings. By allowing for faster depreciation of assets, the ACCA provides corporations with immediate tax relief and cash flow.
- Film and Media Tax Credits – Canada has tax credits for the film and media industry. These include federal credits like the Film or Video Production Services Tax Credit (PSTC) and provincial credits. These incentives are to attract international production companies to Canada, support local talent, and the film industry.
- Small Business Deduction (SBD) – Canadian-controlled private corporations (CCPCs) benefit from the Small Business Deduction which provides a reduced tax rate on the first $500,000 of active business income. This tax credit is to support the growth and development of small businesses in Canada so they can reinvest their profits and expand.
How to Claim Tax Credits
To claim tax credits, corporations must meet certain requirements and file the right documents. For example, to claim the SR&ED tax credit, you need detailed records of the R&D activities conducted, time logs, project descriptions and financial statements. It’s often recommended that businesses work with tax professionals who specialize in corporate tax credits to ensure compliance and get the most out of these programs.
Summary
Tax credits are a great way for Canadian corporations to reduce their tax bill and encourage activities like research, development and investment in clean energy. Knowing what credits are available and how to claim them is key for businesses to get the most out of their money. By working with professional tax accounts to claim these incentives, corporations can boost their bottom line and help grow the Canadian economy.