The Scientific Research and Experimental Development (SR&ED) tax incentive program is the largest technology-related financing program offered by the federal government, providing about $4 billion in tax credits every year. It offers investment tax credits to qualifying corporations and individuals that can be used to recover a portion of costs related to basic research, applied research, or experimental development in a field of science or technology.
A company must have incurred eligible costs (which include, among others, salaries, materials, overhead, and payments to third parties) in pursuing SR&ED, which is defined as “a systematic investigation or search which is carried out in a field of science or technology by means of experiment or analysis and which is basic research, applied research, or experimental development.”
For Canadian-Controlled Private Corporations*: Tax credit is 35% of eligible expenditures, up to a maximum expenditure level of $3 million. Tax credit is 15% of eligible expenditures above this threshold. Tax credit is 100% refundable for expenditures below threshold and 40% refundable for expenditures above it.
For other corporations: Tax credit is 15% of eligible expenditures and is non-refundable.
For individuals: Tax credit is 15% of eligible expenditures and is 40% refundable.
In addition, most provinces provide their own tax credits that are administered in conjunction with the federal SR&ED program. In Ontario, the Ontario Innovation Tax Credit gives corporations an additional 10% tax credit on eligible expenditures up to $3 million that is 40% refundable, and the Ontario Research and Development Tax Credit gives a further 4.5%, non-refundable tax credit on remaining eligible expenditures.
A T661 form (SR&ED tax credit claim) must be submitted with a tax return no more than 18 months after the tax year for which the expenditures are claimed, as well as either T2SCH31 or T2038(IND). To claim the Ontario Innovation Tax Credit, T2SCH566 must be submitted.
More Information can be found at the CRA’s SR&ED Portal.
The CRA’s regional contact points for the SR&ED program are available here.
Wilson Cook Associates can assist with applications for this program. If interested please contact us at Wilson Cook Associates.
*Private corporations resident in Canada, not subject to the control of a non-resident third-party or Canadian public corporation, and with an income under the qualifying limit. See Qualifying Corporation in the CRA’s SR&ED Glossary.