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ARTICLE · 04 APRIL 1997

Enhanced Documentation Requirements For Research And Development Tax Credits In

PwC Management Services LP
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CanadaAccounting and Audit

PLEASE NOTE: THIS INFORMATION WAS ORIGINALLY SUBMITTED BY COOPERS & LYBRAND, CANADA

Canadian tax legislation provides for income tax credits for qualified research and development ("R&D") expenditures. These credits are computed at rates of 20% or 35% of R&D expenses, and in certain cases a portion can be currently refundable when they exceed the corporation's income tax liability. Unused credits may be carried back three years or forward for up to ten years and applied to reduce income taxes incurred in those years.

To claim R&D tax credits, taxpayers must be able to satisfy Revenue Canada that their research and development activities qualify. Earlier this year, Revenue Canada released draft guidelines for R&D tax credits in the area of software development. On a technical level, the guidelines do not represent any change in the laws governing R&D tax credits. But, on a practical level, the changes are substantial.

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