Canadian-controlled private corporations ("CCPCs") which carry on research activities will be pleased with the proposed increase in refundable tax credits contained in the Budget. Presently, up to $2 million a year of qualified expenditures on scientific research and experimental development ("SR&ED") are eligible for a 35% tax credit that is fully refundable to a CCPC. This credit can generate up to $700,000 a year in cash refunds. Under the Budget proposals, the limit for fully refundable tax credits will increase to $3 million, thereby allowing a CCPC to generate up to $1,050,000 a year in cash refunds. As a result of this change, Federal tax assistance for research activities should increase significantly above the $4 billion that was provided in 2007. This is the first such increase since the SR&ED program was introduced in 1985. Given the rising costs of research, no doubt some organizations will argue that the proposed increase is long overdue.

Canada's SR&ED program is designed to prevent larger CCPCs from claiming the full tax credit. It does this by steadily reducing the fully refundable tax credit for corporations which exceed certain thresholds of taxable income or taxable capital. Presently, a corporation which has $600,000 of taxable income or $15 million of taxable capital loses the entire benefit of the 35% fully refundable tax credit. Under the Budget, a CCPC may have up to $700,000 of taxable income or $50 million of taxable capital before this tax credit is fully eroded. The increased limits will allow somewhat larger corporations to benefit from the fully refundable tax credit.

The Budget also offers a slight accommodation for research carried on outside Canada. Normally, expenditures only qualify for an investment tax credit if the related SR&ED is carried on inside Canada. Under the new rules, where Canadian resident employees carry on SR&ED activities outside Canada, and where their work is solely in support of SR&ED carried on by the taxpayer in Canada, the salary and wages of those employees may qualify for the SR&ED investment tax credit. However, a number of restrictions will apply. For example, under the Budget, qualifying salary or wages for work outside Canada will be limited to 10% of the total salary and wages directly attributable to SR&ED carried on in Canada during the year. In a number of ways the Budget effectively limits the tax credits which will be available in Canada for research activities conducted outside Canada.