Benefits of SR&ED
The Government of Canada provides tax incentives to encourage Canadian companies of all sizes and individuals in all sectors of industry to create or improve their existing materials, devices, software, products, or processes by conducting scientific research and experimental development (SR&ED). These tax incentives come in the form of an investment tax credit (ITC) or a refund, or both depending on the circumstances. Unused SR&ED ITCs may be carried backward or forward.
How to claim SR&ED tax credits
In order to claim SR&ED tax credits, all activities claimed must meet the three criteria of Technological Uncertainty, Technological Advancement, and Technical Content according to CRA Eligibility of Work for SR&ED Investment Tax Credits Policy.
Exact compliance to the narrowly defined SR&ED Eligibility of Work Policy and definitions for SR&ED is required for making tax credit claims, and substantiation of the claim is needed by the CRA auditor and technology reviewer in project review meetings.
ITC Rates
A “prescribed proxy amount” (overhead) of 55% is added to the qualified SR&ED expenditures in the calculation of the ITC amount earned.
Earning the enhanced ITC rate of 35%
Canadian-controlled private corporations (CCPCs) may earn SR&ED ITC at an enhanced ITC rate. This enhanced rate may be earned on qualified SR&ED expenditures up to a maximum threshold of $3 million.
Earning the basic ITC rate of 15%
The following types of claimants can earn SR&ED ITC at the basic ITC rate:
- corporations, other than certain CCPCs
- sole proprietorships (individuals)
- partners of a partnership
- beneficiaries of trusts