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Alberta SR&ED credit - Legislation introduced

R&D Tax Update, November 2008 (08-7)

 

The cost of performing research and development in Alberta has now been significantly reduced. Legislation relating to the 2008 budget announcement for the Alberta Scientific Research and Experimental Development (SR&ED) credit was introduced on November 6, 2008 and passed third reading on November 24, 2008.

Investment tax  credit
For expenditures incurred in Alberta after December 31, 2008, a 10% refundable credit will be available on eligible expenditures, up to $4,000,000 per calendar year. This credit is only available to corporations with a permanent establishment in Alberta.

Eligible activities
Eligible activities for Alberta purposes are consistent with those for federal purposes. Any determination made by Canada Revenue Agency will be applied for the purposes of eligibility in Alberta.

Eligible expenditures
Eligible expenditures for Alberta purposes are also consistent with those for federal purposes. Allowable expenditures may include materials, labour, capital, contract payments, lease costs, and qualifying third party payments. For the expenditures to qualify, they must be incurred in Alberta.

Alberta eligible expenditures are reduced by any federal SR&ED investment tax credit (ITC) received in the immediately preceding taxation year, relating to expenditures incurred in Alberta after December 31, 2008.

Overhead is calculated following the federal methodology, using either the “traditional method” or the “proxy method”. For Alberta purposes, the proxy amount is 65% of the eligible salaries and wages incurred in Alberta. The election to use either the traditional or proxy method must be the same for both the Alberta and federal claims.

Expenditure limit
The annual expenditure limit of $4,000,000 is shared amongst all corporations in an associated group. This limit can be allocated in a manner that is different than the allocation of the federal expenditure limit. Unlike the federal limit, the Alberta expenditure limit is not reduced by taxable income or taxable capital.

The Alberta expenditure limit will be required to be prorated for corporations that have a non-calendar year-end when calculating the 2009 ITC. It will also be required to be prorated for corporations with short taxation years.

Recapture of credits
In the event that an ITC is received on property in Alberta, that ITC will be required to be recaptured in the event that the property ceases to be located in Alberta. Other recapture rules have been introduced and are comparable to federal requirements, with the exception that the period relating to recapture on capital expenditures is twenty years for Alberta purposes as compared to ten years federally.

Filing deadline
The Alberta filing deadline is consistent with the federal filing deadline, namely, 12 months after the date on which the tax return is otherwise due.

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