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The SR&ED Program
The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program offered by the Canadian government. These incentives, received in the form of tax refunds or tax credits, were created to encourage Canadian businesses to conduct research and development (R&D) in Canada leading to new or improved products and technological processes.
The SR&ED program is the largest single source of federal government support for industrial research and development. Each year, the federal government hands out over $3 billion dollars in tax credits to over 18,000 tax payers.
These R&D tax credits can offer tremendous financial support for companies, but many of them have no knowledge of the program, how to apply the program guidelines or defend a claim for their specific situation. In fact, it is estimated that up to 60% of eligible claimants do not recover their tax credits.
Am I Eligible?
The SR&ED program is not restricted to any sector or industry. Any company that meets the technological and financial criteria can claim tax credits as part of their annual T2 corporate filing.
Many potential claimants undervalue their R&D within their own company and assume that it is not an eligible activity. Moreover, companies mistakenly attribute qualifying R&D to be tied only to new product development. In fact, qualifying activities can include improvements to existing products, manufacturing processes, automated assembly or other advancements in which intellectual property and technological advancements are made.
The focus is on the underlying advancements to your company’s technology, productivity or processes – not the implications to product marketing or quality of service. If your company is engaging in R&D activity, encountering uncertainty during this process and finding advancement as a result – your company is likely eligible for an SR&ED tax claim.
More information on common misconceptions about the SR&ED program can be found in our FAQ section.
What is My Claim Worth?
Salaried expenditures are typically the key drivers to an SR&ED claim as they offer the highest rate of incentive return, followed by eligible material, subcontractor and capital equipment costs. The majority of salaries and sub-contract expenditures must be conducted within Canada to be considered an eligible expense.
If you are a Canadian controlled private corporation (CCPC), you can recover up to 82% of all qualified SR&ED salaries, in addition to other expenses such as materials, equipment and subcontractors. Non Canadian-controlled corporations and public companies also qualify but at a lower rate.
For more information on the SR&ED program or to determine if your company qualifies for the program, contact our local representative. Official SR&ED program information can be found at the Canada Revenue Agency Website:
http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.html