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September 22, 2015

Funding Your Research and Development Activities

Written by: Lyndon Braun, CPA, CGA

While not a new program, the Scientific Research and Experimental Development (“SR&ED”) tax incentives provided by the Canadian Federal and Provincial governments can be a significant way to achieve a competitive advantage in your business. Be sure you are not overlooking this program as a source of government funding for your business. 

In BC, depending on the size of your company, you can receive income tax credits of anywhere from 23.5% to 41.5% on your research and development expenditures. Individuals can also earn SR&ED credits equal to 23.5% of the expenditures for unincorporated business activities. Further, in certain instances these tax credits are refundable so that even if your business doesn’t owe any income taxes, you will receive cash back from the government.

SR&ED is defined as the systematic investigation or search carried out in a field of science or technology by means of experiment or analysis…to advance scientific knowledge or to achieve technological advancement. In competitive marketplaces, with continuous needs to drive innovations and improve and adapt, many companies are already undertaking some forms of research and development for the purpose of creating new, or improving existing materials, devices, products or processes.

If your company is developing new products or product lines, improving the capabilities of existing products, enhancing the performance of existing products, developing new production processes or techniques you may be undertaking work that is eligible for SR&ED funding.

One of the most important factors in planning for SR&ED is ensuring that your company can access the higher refundable income tax credit rates of 41.5%. If the company (or associated group of companies) has income exceeding $500,000 this refundable credit becomes non-refundable and the rate of credit is reduced. Planning can be undertaken to choose an optimal corporate structure to ensure that the highest rates are maintained year after year and to ensure that ongoing research and development projects receive optimal funding through the SR&ED program.

Manning Elliott can assist in developing a plan to access these additional incentives to give you more capital to drive your business. We can work with your staff to identify the costs associated with your research and development work, we can assist in preparing the financial information needed to file the SR&ED claim with the Canada Revenue Agency, and we can connect or liaise with your technical staff or consultants to ensure that your SR&ED claims are filed properly and on time. Please contact Lyndon Braun of the Manning Elliott Tax Team for assistance.

The content included in this blog post is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.