Understanding the SR&ED Tax Credit Program

The Scientific Research and Experimental Development (SR&ED) Program is a program in Canada that offers federal tax incentives for Canadian businesses, both large and small, that do research in the country. The purpose of the SR&ED Program is to advance technology and create new products and processes.

Through the SR&ED Program, businesses in Canada get a total of CAN$4.5 billion dollars every year. As many as 18,000 businesses claim these tax incentives and 75% of these are small businesses.
The goal of the SR&ED Program is to encourage the advancement of technology and science, as well as encourage companies to do more research and development in the future. These tax credits can be used in a variety of ways to benefit the companies including applying them to taxes from 3 years ago or for 20 years in the future.

The goal of the Canadian government is for companies to grow stronger and be better able to compete in the global market. Another benefit of the SR&ED Program is that it encourages more companies to come to Canada to do research and development.

The SR&ED Program is open to all Canadia- controlled companies, both big and small, that work in the field of research or development of technology of any kind. The hope is that these companies will do research that further improves upon current products and processes and creates new products and processes as well.

The amount of tax credits a large company in Canada can get will depend on the amount of taxable income and capital that it had the previous year and on an expenditure limit. Small companies, partnerships, trusts, and propertiorships can earn up to 20% in tax refunds based on qualified expenditures. The refund goes against taxes the company owes but companies have the option of getting a 40% cash refund based on the Investment Tax Credit Rate earned that year.

The standards for a qualifying SR&ED Program are tight and include the following types of work:

1. Experimental Development - This is research done to improve or advance a current project, process, or material so it is technically different and better.

2. Applied Research - This involves focusing on a practical application by improving the scientific understanding of the process or product.

3. Basic Research - This is research that has no specific purpose or application in mind but is done to advance scientific understanding in general.

Some types of research do not qualify and they include:

1. Research for marketing purposes or data collection

2. Research done to promote goods or services

3. Research done to test products for quality control

4. Producing new or improved upon commercial goods

5. Changing the appearance of current products, materials, or processes

6. Research on social science or humanities topics

7. Research for the purpose of drilling or exploring for minerals, gas ,or petroleum

8. Any kind of research that is part of normal business operations

The types of costs that a company can claim as long as they occur in Canada include:

1. Money spent on salaries and wages for employees

2. Money spent on materials

3. Money spent on leasing or capital costs

4. Certain overhead expenses

5. Certain payments to third parties

In order for the cost of wages to be claimed, the employees must work in Canada. The SR&ED program offers great tax incentives to Canadian companies. This program is particularly beneficial to small companies that have trouble coming up with the money for research programs.

About the Author:
Evamax Group is an SR&ED consulting firm located in Ontario Canada.