The Investment Tax Credit for Research and Experimental Development (IRAP) is a tax incentive program offered by the Canadian government to encourage businesses to invest in research and development (R&D) activities. The IRAP program allows eligible businesses to claim a tax credit based on their qualified R&D expenditures for the year. However, calculating the IRAP for 2017 can be a complex process that requires careful consideration of various factors.

To the IRAP for 2017, businesses need to first determine their qualified R&D expenditures for the year. Qualified expenditures generally include expenditures directly related to R&D activities, such as salaries and wages, subcontractor expenses, materials, and overhead costs. However, it is important to note that not all R&D expenses may be considered qualified expenditures for the purpose of calculating the IRAP.

Once the qualified R&D expenditures have been determined, businesses need to calculate their annual gross revenue for the year. Gross revenue generally refers to the total revenue earned by the business before deducting any expenses. It is important to ensure that all sources of revenue are accounted for, including sales, services, and other income.

Next, businesses need to calculate their annual direct labor costs, which include the salaries and wages paid to employees directly involved in the R&D activities. These costs should be allocated to the R&D projects based on the time spent by each employee on R&D versus non-R&D activities. This allocation is necessary to determine the amount of qualified labor expenditures that can be included in the calculation of the IRAP.

After determining the qualified R&D expenditures, annual gross revenue, and direct labor costs, businesses can then calculate the IRAP for 2017. The formula to calculate the IRAP is as follows:

IRAP = qualified R&D expenditures – (gross revenue x direct labor cost rate)

The direct labor cost rate is a predetermined percentage set by the Canadian government, which is used to determine the portion of direct labor costs that can be included in the calculation of the IRAP. This rate may vary depending on the industry and the nature of the R&D activities.

Once the IRAP has been calculated, businesses can claim the tax credit on their income tax return for the year. It is important to note that the IRAP tax credit is non-refundable, meaning that it can only be used to offset taxes payable. If the tax credit exceeds the taxes payable for the year, the excess cannot be refunded but can be carried forward to future years.

In conclusion, calculating the IRAP for 2017 involves determining the qualified R&D expenditures, annual gross revenue, and direct labor costs. By following the prescribed formula and considering the predetermined direct labor cost rate, businesses can calculate the IRAP tax credit to be claimed on their income tax return for the year. It is important for businesses to consult with a tax professional or advisor to ensure accurate calculations and compliance with the relevant regulations and guidelines.

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