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Scientific Research and Experimental Development (SR&ED)
To encourage Canadian businesses to conduct research and development (“R&D”) in Canada, the Department of Finance has a Scientific Research and Experimental Development (“SR&ED”) Tax Incentive Program (“Program”). This Program is administrated by the Canada Revenue Agency (“CRA”) and provides significant tax incentives to R&D businesses by providing a SR&ED Investment Tax Credit (“ITC”) which is refundable in cash or can be used to reduce corporate or personal incomes taxes payable.
Canadian corporations, individuals resident in Canada, Canadian partners of a Canadian partnership, and beneficiaries of a Canadian trust qualify and can all apply to this Program. This includes Canadian businesses of all sizes and in all sectors which conduct R&D in Canada.
How much can you get?
Entities and individuals that qualify will be able to deduct 100% of the expenditures in the tax year that they are incurred; in addition, you may also qualify for an ITC which ranges from 15% up to 35% of the qualified expenditures, depending on whom is claiming the expenditures. The ITC comes in the form of a reduction of income taxes or a cash refund or both, depending on the circumstances.
What work qualifies for SR&ED tax incentives?
To qualify as SR&ED, the work must meet the definition of one of the following:
- Basic research – research purely to gain scientific knowledge;
- Applied research – similar to basic research, but with a specific practical application in view; or
- Experimental development – performance of research to achieve technological advancement, which will help development of new products or processes or improve existing ones.
The work must be a systematic investigation or search by means of experiment or analysis. Each approach taken to resolve uncertainty should be a planned experiment based on an idea or a concept.
What expenses are eligible?
All expenses that are directly related to SR&ED work are eligible, for example:
- Salaries or wages
- Overhead and other expenditures
What expenses are ineligible?
A new or improved product does not always mean that a technological advancement has been achieved. The following types of expenditures are disallowed under the SR&ED Program:
- Marketing research
- Quality control or routine testing of materials, devices, products or processes
- Exploring and evaluating mining or oil and gas properties
- The commercial production or use of a new or improved material, device or product
- Style changes
- Routine data collection
Contact one of our SR&ED Experts at 604-714-3666
To find out whether you qualify and determine if your expenditures are eligible for the SR&ED Program, contact one of our SR&ED experts today.
For more information on the SR&ED Program, please visit the CRA’s website: www.cra-arc.gc.ca/sred/