On March 25, 2008, Ontario released its budget. Budget measures relevant to technology companies and their investors include a limited 10-year corporate tax holiday, the Ontario Innovation Tax Credit and the Ontario Interactive Digital Media Tax Credit.

10-Year Corporate Tax Holiday (Commercialization Activities)

The budget proposes a 10-year tax exemption for new corporations that commercialize intellectual property (IP) developed by qualifying Canadian universities, colleges or research institutes.

Qualifying corporations established after March 24, 2008 and before March 25, 2012 would be exempt from Ontario corporate income tax and corporate minimum tax for their first 10 taxation years. The exemption would apply to corporations incorporated in Canada that derive all or substantially all of their income from eligible commercialization activities carried on in Ontario. Such activities would generally include the development of prototypes and the marketing and manufacturing of products related to IP in priority areas such as bio-economy/clean technologies; advanced health technologies; and telecommunications, computers and digital technologies.

Ontario Innovation Tax Credit

The Ontario Innovation Tax Credit (OITC) is a 10 per cent refundable tax credit available to small- and medium-sized corporations that carry on scientific research and experimental development (SR&ED). The budget proposes to extend the OITC by paralleling enhancements to the federal SR&ED tax credit proposed in the 2008 federal budget.

The budget further proposes to increase the OITC expenditure limit from $2 million to $3 million and to increase the taxable income phase-out limit to $700,000 while maintaining the current taxable capital phase-out limit of $50 million.

Ontario Interactive Digital Media Tax Credit

The budget proposes to increase the Ontario Interactive Digital Media Tax Credit (OIDMTC) rate for certain corporations from 20 per cent to 25 per cent for qualifying expenditures incurred after March 25, 2008 and before January 1, 2012. The budget also proposes to extend the enhanced 30 per cent OIDMTC rate for small corporations to January 1, 2012.

For information on the other proposals in the budget, please read our firm's commentary.

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