Scientific Research and Experimental Development (SR&ED)
The Scientific Research and Experimental Development (SR&ED) tax credit program offers federal and provincial iterations, including three Ontario provincial variants .
Amount of Funding
The Scientific Research and Experimental Development (SR&ED) program offers different levels of funding depending on the eligible expense:
Labour: Up to 69% of eligible salaries (including overhead).
Contractor: Up to 36% of contractor costs.
Materials: Up to 45% of materials consumed.
In addition to the federal credit, most provinces and territories also provide additional support of between 3.5% and 30% of eligible qualifying expenditures.
Eligible Applicants
The federal Scientific Research and Experimental Development (SR&ED) program is offered Canada-wide combined with provincial funding. With SR&ED being one of the largest tax incentive programs it is available to a wide range of Canadian businesses including:
Canadian-Controlled Private Corporations (CCPC)
Canadian owned businesses subject to certain size tests may earn a refundable Investment Tax Credit (ITC) at the enhanced rate of 35% on qualified SR&ED expenditures of up to $3 million. Eligible expenditures beyond this threshold or for CCPC’s not meeting the size tests attract a non-refundable ITC at 15%.
Other Corporations
Other corporations can earn a non-refundable Investment Tax Credit (ITC) at a rate of 15% on qualified SR&ED expenditures.
Individuals and Trusts
Individuals and trusts can earn a non-refundable Investment Tax Credit (ITC) at a rate of 15% on qualified SR&ED expenditures.
Members of a Partnership
The Investment Tax Credit (ITC) is calculated at the partnership level then allocated to eligible members (individuals, corporations or trusts).
Eligible Expenditures
Projects that are eligible to receive funding through the Scientific Research and Experimental Development (SR&ED) program must be conducting experimental development and/or research activities exhibiting some level of uncertainty and risk as evidenced by the availability of solutions to overcome this uncertainty available in the public domain. Eligible labour expenses will cover the portion of an individual’s role that revolves around such experimentation. Eligible materials and supplies must relate to the qualifying projects to receive tax incentive funding.
Labour:
Based on time spent on eligible activities in Canada; and
Limited ability to claim work outside Canada for Canadian employees.
Contractors:
Contractors Portion of contract related to SR&ED performed on your behalf; and
Must be Canadian contractors and work must be performed in Canada.
Materials:
Consumed (i.e. scrapped) and Transformed, Prototypes, Trial materials; and
Materials can be purchased from Canadian or non-Canadian suppliers.
Overhead:
Proxy method: 55% of (adjusted) labour costs; and
Traditional method: must be directly related and incremental to the prosecution of SR&ED.
Program Deadline
SR&ED claims are due within 18 months of the fiscal year end of the corporation. Once the claim is filed, CRA reserves the right to conduct a review of the claim to determine whether the claimed projects meet the definition of SR&ED in the Income Tax Act. In the event of a review, CRA may conduct a joint technical-financial review or just a financial review. Upon approval, the SR&ED tax credits may be refundable in cash, used to offset taxes payable, or otherwise carried forward for up to 20 years. These carry-forward credits may survive mergers, acquisitions, amalgamations and wind-ups under certain conditions.
To determine whether your business is eligible for benefitting through the Scientific Research and Experimental Development (SR&ED) tax credits, consider speaking with the Ryan team of Canadian SR&ED Consultants.
