SRED – What Is It?
The Scientific Research and Experimental Development program, also known as the SR&ED Tax Incentive program, or just SR&ED, gives tax breaks to Canadian corporations and taxpayers for conducting R & D activities in Canada.
SR&ED – Who Can Apply?
If you are solving technological problems, you may be able to claim SR&ED tax credits. The government wants to see that you have not used any off-the-shelf solutions; that you documented all your processes, time, and materials; and that your research and development was used to improve a product or a process. This scientific research and development can be in any industry, and it is not limited to the technology sector as some people are led to believe.
SR and ED – How Much Can I Get?
CCPCs, or “Canadian controlled private corporations”, can get research tax credits for 35% of eligible expenditures, up to a $2 million limit. After $2 million, they can get 20%. Public companies, partnerships, and sole proprietors can receive 20% of acceptable expenditures.
A large part of eligible expenditures include salaries and materials. Capital costs are also included if the equipment purchased is used for research purposes. Overall, the rules around what can and cannot be claimed are very complex, as you can imagine with any tax legislation. The best approach is to get some help, and you will find many tax consultants with decades of experience in this directory. Also see: How to Pick a SR&ED Consultant.
SR & ED – How Do I Get Paid?
If you are a CCPC, and you are under the small business limit of $400,000/year, the CRA will write a cheque for the tax credits you have successfully claimed. For public companies, you will receive a “non-refundable” credit that can be used to reduce any taxes payable.
Credits can be carried back 3 years or forward for up to 10 years. In some cases Provinces may provide refundable tax credits where the CRA does not – PWC has a comprehensive table on Provincial and territorial R&D tax credits here.