SR&ED Tax Incentives: What Is It And How To Claim It For Your Canadian Business?
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What Is The SR&ED Tax Credit?Scientific Research and Experimental Development (SR&ED) is a tax incentive provided by the government of Canada to businesses for conducting research and development (R&D) in Canada. SR&ED tax credit eligibility extends to all kinds of businesses operating in Canada and investing in R&D in Canada. If the R&D project has any of these features, it might be eligible for the CRA SR&ED claim:
- Project compliant with environmental regulations
- Resolving technical issues or consultation studies
- Capital spending for your R&D project
- Revamped usage of existing tech
- Development/ improvement of products/ process
- Strategies for reducing costs
- Integrating the latest tech with old/obsolete facility
What Are The Tax Benefits Of SR&ED?As per the CRA SR&ED guide, these are the following incentives.
- Non Refundable/ Refundable Investment Tax Credit (ITC)
- A deduction against income.
|SR&ED Tax Credit Calculation
|Canadian-controlled private corporations
|Refundable ITC → enhanced rate → 35% on qualified SR&ED expenditures up to their expenditure limit for the tax year. Maximum expenditure limit: $3 million
|Non-refundable ITC → base rate → 15% on an amount over the expenditure limit. If a CCPC meets the definition of a qualifying corporation, 40% of the ITC earned at 15% is refundable.
|Non-refundable ITC →base rate →15% on qualified SR&ED expenditures.
|Proprietorships/ Trusts →refundable ITC → base rate →15% on qualified SR&ED expenditures. Apply the ITC against tax payable before the CRA can refund 40% of the unclaimed balance of ITCs earned in the year.
|Not eligible for ITC.
What Can Be Claimed Under SRED?For filling an SR&ED claim, you first need to find out how much was spent on the eligible SR&ED work done in the year. You can take note of the items mentioned below and also use the self - assessment tool by CRA to find out more about the SRED claim process.
|Directions as per CRA SR&ED Guide
|You can claim the expenses for employees' salaries or wages incurred during their direct involvement in SR&ED work current year. To earn the Input Tax Credit (ITC), payments must be made within the tax year or within 180 days after the tax year-end. The previously identified unpaid amount is eligible for ITC for the year of the original outstanding salary/ wages paid. You must have incurred and paid the amount in the tax year/ paid by 180 days of tax year-end.
|For claiming CRA SR&ED, materials include substances, raw materials, and other items composing the body of a thing involved in the SR&ED process.
|If a business has paid a contractor for conducting research work for their business, its cost is recoverable under SR&ED Tax Credits Canada.
|Overhead/ Other Expenditures
|In the context of SR&ED Canada, overhead and other expenditures refers to current expenses directly linked with SRED in Canada, which wouldn’t have been incurred otherwise.
|SR&ED tax credit eligibility for third-party payment is an amount spent by the claimant that should connect with the claimant's business, and the claimant must have the right to benefit from the outcomes of the SR&ED activities.