• as part of a phase of a project if 

construction or engineering and 
design work was started before 
March 29, 2012.

Phase-in provisions also have been 
introduced for the implementation of 
the new rules. The specified percentage 
applicable to qualified resource property 
that is not grandfathered is:

• 10% if the property is acquired after 

March 28, 2012 and before 2014, and

• in any other case:

– 5% in 2014 and 2015, and
– 0% after 2015.

Scientific Research and 

Experimental Development Credit

The scientific research and experimental 
development (SR&ED) program is 
designed to encourage Canadian 
companies to conduct research and 
development (R&D) activities in Canada 
that will lead to new, improved, or 
technologically advanced products 
or processes. The SR&ED program 
provides tax incentives in the form of 
deductions in computing income and 
ITCs, which are based on the amount of 
expenditures incurred on eligible R&D 
activities.

Eligible SR&ED expenditures may 
include wages, materials, machinery, 
equipment, some overhead, and 
third-party R&D contracts. Only 80% of 
contract payments constitute eligible 
expenditures. After 2013, eligible 
expenditures will not include capital 
expenditures.

Corporations (other than Canadian-
controlled private corporations) that 
incur eligible SR&ED expenditures 
may claim a non-refundable federal 

ITC equal to 20% (reduced to 15% 
effective January 1, 2014 prorated 
based on the number of days in the 
taxation year). Corporations that are 
Canadian-controlled private corporations 
are entitled to ITCs of up to 35% 
and are entitled to a refund of all or 
a portion of the credit. 

Provincial R&D tax credits may also be 
available ranging from 4.5% in Ontario 
to 37.5% in Québec. 

A taxpayer may carry forward unused 
federal ITCs for 20 years and carry back 
such federal ITCs for 3 years.

The SR&ED program covers 
technological projects carried out with 
the objective of creating or improving 
materials, devices, products, or 
processes, or solving problems of a 
technical nature, provided that they 
meet all of the following criteria:

• Scientific or technological 

advancement: The activity is carried 
out to create a new product or a new 
process or to improve an existing 
product or process, and the activity 
must generate information that 
brings a scientific or technological 
advancement to the corporation.

• Scientific or technological 

uncertainties: Based on generally 
available scientific or technological 
knowledge or experience, it is not 
known whether a given result or 
objective can be achieved, or how 
to achieve it.

• Scientific or technological content: 

There must be evidence that qualified 
personnel with relevant experience in 
science, technology, or engineering 
have conducted a systematic 
investigation through means of 
experimentation or analysis.

The success or failure of the R&D 
activities is not important in determining 
whether the work undertaken is eligible 
for SR&ED ITCs. 

In the mining context, R&D relating to 
the following activities may qualify for 
the SR&ED program:

• extraction and processing 

methodologies;

• geophysical and geochemical 

analysis methods;

• modelling and seismic interpretation;
• climate and topographical constraints 

(permafrost, geological formations);

• site remediation technologies 

developed for unique applications 
(acid drainage, forestation);

• efficiency improvements in general 

mining operations;

• equipment development; and
• blasting, explosive, and detonation 

technology.

To make an SR&ED claim, it is 
necessary to maintain documentation 
to support the work undertaken in order 
to meet the three criteria above. 

Qualifying Environmental 

Trusts

A taxpayer may deduct reclamation 
expenses in respect of a mining 
property only at the time the expense 
is actually incurred. Historically, this 
has been after the mine has ceased 
production and is no longer generating 
income. Consequently, taxpayers in 
the mining industry have often been 
placed in a position where they have 
no income against which to deduct the 
reclamation expense. The qualifying 

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 

Deductions, Allowances, and Credits 

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