In funding R&D in Canada, the Scientific Research and Experimental Development (SR&ED) program offer tax credits and financial support that businesses of all types and sizes can use. Utilize your SR&ED funding to help balance your budget, reinvest in further R&D, or accelerate growth. SR&ED grants work in various ways.
The SR&ED tax credit program was designed to support innovation and R&D using investment tax credits (ITCs) and tax refunds. SR&ED applies only to eligible R&D projects and is calculated exclusively on eligible SR&ED expenditures.
Here is your guide to how SR&ED tax credits work, how a business qualifies, and what to expect during the claims process.
What Is an SR&ED Project?
The SR&ED tax credit is issued according to what type of work was performed. To qualify, an SR&ED project must be defined under one of the following three categories.
- Experimental development: an attempt to achieve technological advancement.
- Applied research: an attempt to advance scientific knowledge with a defined practical application.
- Basic research: an attempt to advance scientific knowledge with no defined practical application.
With many projects, some work is SR&ED, and some aren’t. What should qualify to have supporting documentation that outlines why? SR&ED work must be done by systematic investigation or search carried out in a field of science or technology and using experiment or analysis. It must be work done to create or improve materials, devices, products, or processes in the name of science or technological advancement and not strictly commercialization.
Who Can Apply for SR&ED Grants?
To qualify for SR&ED grants, one must have conducted their R&D work in Canada. That is a must. As far as who can apply, Canadian-controlled private corporations (CCPC) are the program’s biggest beneficiaries.
That said, any foreign-controlled corporation, individual, partnership, or trust can apply so long as the work is performed in Canada and qualifies under the SR&ED criteria. Businesses should work with an SRED consultant to navigate the application process.
How Much Can I Get In A SR&ED Grant?
SR&ED grants are issued according to what type of business you own. A CCPC can receive a maximum of 35% on eligible expenditures in refundable tax credits up to $3 million and then a maximum of 15% of any additional sum over $3 million, with 40% refundable. A foreign-controlled corporation, individual, or trust can earn 15% on eligible expenditures in non-refundable tax credits.
There is no cap as far as a dollar amount on what can be claimed under an SR&ED grant.
What Can You Claim Under SR&ED Grants?
SR&ED grants cover salaries and wages, materials used during the R&D work, subcontracting fees, and overhead costs. There is a strict criterion on how much of each expenditure can be claimed and how they factor into calculating how much of a tax credit you will receive.
You can claim the salaries and wages of all Canadian tax residents who have worked on an eligible SR&ED project. These workers must be Canadian residents or be licensed to work in Canada. Foreign workers in Canada here on a visa or permanent residency status are also eligible to be included in the salaries and wages factored into an SR&ED claim.
When Do I File An SR&ED Claim?
An SR&ED claim should be filed with your income tax return. For corporations, the deadline for a tax return is no later than six months after the fiscal year-end. Subsequently, SR&ED reports must be in no later than twelve months or eighteen months after the end of the tax year in which the R&D expenditures were incurred.
What you will receive from an SR&ED tax credit claim relies on the claim being approved. Expect your claim to be evaluated and approved within 60 calendar days after the claim’s received on the CRA’s end. If the claim is not accepted, you will be notified of what else is requested from you and why it was denied.
If the claim is selected for review, this is to be completed within 180 calendar days of the date of receipt. Please note that these are CRA targets and that these targets are not always met. It may take longer, depending on different variables.
Should I Apply for an SR&ED Grant?
If you are conducting R&D in Canada, you should apply for an SR&ED grant. It can dramatically impact your R&D budget and is not a grant singularly targeting larger companies. Small and medium-sized businesses can also apply and benefit. While SR&ED forms and applications can appear complex, an SR&ED specialist can help simplify the process and ensure your claims are written properly.