The Scientific Research & Experimental Development (SR&ED) tax incentive program is the Canadian government’s largest single support program for research and development (R&D). Introduced in the 1980s and administered by the Canada Revenue Agency (CRA), it is available to both small and large businesses. The program aims to encourage Canadian companies to undertake research and development activities inside the country.
The credits are a tax incentive for performing qualified research in Canada, resulting in a credit to a tax return. The credit is refundable up to amounts of $3 million, so the business gets a cash refund even if it is not making a profit. Unused tax credits can also be carried over.
Generally, a Canadian-controlled private corporation can earn a refundable investment tax credit of 35 percent for up to the first $3 million of qualifying expenditures for SR&ED and a non-refundable investment tax credit of 15 percent on excess amounts.
Other Canadian corporations, proprietorships and trusts can earn an investment tax credit of 15 percent of qualifying expenditure for SR&ED.
Qualifying expenditures include relevant SR&ED:
- Salaries and wages
- Material costs
- Contract expenditures
- Lease expenditures
- Third-party payments
- Capital expenditures
The purpose of the activities must be to create new or improved products, processes, materials or technologies.
To be eligible, your R&D project must meet three criteria:
- Scientific or technological advancement
- Scientific or technical content
- Scientific or technological uncertainty
The activities do not have to be successful to qualify. Further details regarding eligibility of work.
Provincial R&D tax credits are also available including the Ontario Innovation Tax Credit, the Alberta SR&ED tax credit and the British Columbia SR&ED tax credit.