SR&ED Tax Incentives: What Is It And How To Claim It For Your Canadian Business?

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    09 Jun 2023
      Corporate Tax filing Surrey Canada, Corporate Tax filing Canada, Corporate Planning & Compliance Canada, In its latest newsroom section, CRA informs about the best practices for tax professionals and business owners for claiming the SR&ED tax credit in Canada. Also, it highlighted some common errors that claim preparers make while filing the request. 

    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
    If your research work is eligible for an SR&ED claim by CRA, your business can use multiple SR&ED expenditures and reduce its net income for all tax purposes in the current year. Otherwise, it can also deduct the expenditure for a future year. Find out if your business is eligible for an SR&ED Canada claim. Get in touch with an expert CPA in Surrey Canada today and save money on taxes today!

    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.
    Corporates can avail the incentive based on their scale of operations, business type, and the kind of research work being conducted by the organization. To claim the SR&ED tax credits in Canada, the ITC of the business must be at least 15% and up to 35% for the qualifying expenditure. One can use these ITCs for reducing the next year of income tax payable. However, if the ITCs for the current year are in access, one may also get a refund. For unused ITCs, the business can carry them 20 years forward or 3 years back for application against payable tax for other years. All trusts, partnership members, individuals, and corporations can use the SR&ED Canada benefits. Read More: What is Alternative Minimum Tax?  Benefits as per business type:   
    Business Type 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.
    Other Corporations Non-refundable ITC →base rate →15% on qualified SR&ED expenditures. 
    Individuals/ Trusts 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.
    Partnership Members 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.   
    Allowable Expenditure Directions as per CRA SR&ED Guide
    Salary/ Wages 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.
    Materials 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. 
    SR&ED Contracts 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. 
    Third-party Payments 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.
    Get Expert Help: Consult CPA in Surrey Canada who will claim a maximum SR&ED tax credit for you. 

    How To Claim SRED Tax Credit?

    You can claim SRED Canada as refundable and non-refundable tax credits for expenses incurred on scientific research and development. For a successful claim, file the income tax return, Form T661, and other supporting documents. Also, mention the business details, contact information, and other technical reports that solidify your claim. Follow this roadmap to receive sr&ed tax credits with ease: Business Planning Solution Canada, Chartered Professional Accountants Canada CPA in Surrey Canada,  

    Wrapping Up!

    SR&ED Claim is a measure from the Canadian government to ensure that more and more businesses invest in R&D in Canada. It offers a slew of discounts, rebates, and tax credits. However, for your request to be successful, your claim request must be backed by tremendous evidence.  CJCPA is an experienced team of CPA in Surrey Canada who can help with SRED tax credit claims. We will help you file Form T661 with other documents necessary for the claim to be 100% successful. CJCPA is a Corporate Tax filing Surrey Canada firm which helps small businesses, restaurants, and large corporations to maintain their books and file taxes on time. Also, we ensure that you get the maximum benefit and lowest taxable income.   
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