Canada’s Scientific Research and Experimental Development (SR&ED) program is a Canada Revenue Agency (CRA) initiative that supports science and technology through cash refunds and or tax credits for R&D conducted in Canada.Canada’s SR&ED program is internationally recognized as one of the best programs to encourage Canadian companies to engage in research and development activities. With over 3.0 billion dollars per year distributed, the SR&ED program offers substantial rebate for every dollar spent on research and development. However determining eligibility, identifying projects, evaluating, articulating, and defending those eligible projects and activities often proves to be overwhelming and difficult for many companies, leading them to either abstain from the program or underestimate their eligibility, receiving funds far below that which they are entitled to.
If you are a Canadian corporation pursuing innovation or improvement, at any level chances are you qualify for the SR&ED program. Often times innovative research and development is thought of as the work performed by white-coated researchers in high-tech companies, however much innovation in Canada takes place on the shop floor in day-to-day activities, developing new equipment, tools, formulations, products, and processes. When conducted in an empirical manner, activities such as these are precisely what the SR&ED program was designed to encourage and support.
Qualifying research and development occurs when any Canadian corporation attempts to resolve technical problems through an experimental approach, i.e. through a systematic investigation of different methods. As a result of this work, the company gains knowledge in a field of technology that it could not have otherwise obtained. SR&ED eligibility is not contingent on experimental success rather only on the attempts to achieve experimental success.
CRA states, “To qualify for the SR&ED program, work must advance the understanding of scientific relations or technologies, address scientific or technological uncertainty, and incorporate a systematic investigation by qualified personnel.
Work that qualifies for SR&ED tax credits includes:
Experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;
Applied research to advance scientific knowledge with a specific practical application in view;
Basic research to advance scientific knowledge without a specific practical application in view; and
Support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research, but only if the work is commensurate with, and directly supports, the eligible experimental development, or "applied" or "basic research”.
If your company is:
...you most probably qualify for SR&ED tax recovery. And being that it includes wages, salaries, materials and overhead, SR&ED refunds can be substantial.
Generally, a Canadian-controlled private corporation (CCPC) with taxable capital in the immediately preceding year that does not exceed the qualifying limit can earn an investment tax credit (ITC) of 35% up to the first $3 million of qualified expenditures for SR&ED carried out in Canada, and 15% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts or CCPC’s that exceed the taxable capital limit can earn an ITC of 15% of qualified expenditures for SR&ED carried out in Canada.