Which types of projects qualify for a SR&ED Canada Tax Credit?

The Scientific Research and Experimental Development (SR&ED) tax credit program is a federal incentive program for companies that carry out scientific or technological research. It is administered and managed by the Canada Revenue Agency (CRA).

Your company may be eligible for SR&ED tax incentives if it is working on a project that promotes technological advancement, addresses technological uncertainty, or performs experimental work. More on that below.

The SR&ED program is designed for Canadian controlled private corporations and provides funding to encourage innovation and creation. If your company is spending money on projects for advancements in technology by creating new and improved materials, products, devices, or processes, then these expenses may be eligible for SRED, and you can get a credit or cash refund on your income tax.

It is important to ensure your expenses qualify for R&D tax credits when you want to file a SR&ED claim. Qualifying expenditures include wages for employees directly involved with the project, costs for Canadian subcontractors who are working on your SR&ED projects, overhead costs, and materials that are consumed or transformed during the project.

The following project activities are typically performed in support of an eligible SR&ED project:

• Experimental Development
• Mathematical Analysis
• Computer Programming
• Psychological Research
• Engineering
• Design
• Operations

These activities do not qualify for a SR&ED Canada Tax Credit

Not all projects activities qualify for the tax incentive program offered by the Canadian Revenue Agency.

For example, everyday projects in the workplace without a focus on scientific and technological advancement, or do not go beyond using known means and methods, or use technologies simply for their intended purpose, will not be eligible for the SR&ED program.

These projects include:

• Market Research
• Routine Quality Control
• Research in Social Science and Humanities
• Commercial Production of New Materials
• Routine Data Collection
• Producing Minerals
• Commercial Use of New and Improved Processes

Three Criteria To Qualify Projects for SR&ED Tax Credits

Much like every other government program there are specific criteria that your project must meet in order to qualify. The SR&ED innovation funding program requires your project to meet all three of the following criteria:

• Technological Uncertainty
• Technological Content
• Technological Advancement

Technological Uncertainty

Your company is eligible for the SR&ED tax credit if it identifies a need for new solutions to technological uncertainties. When your company does a systematic investigation to overcome these challenges, the CRA will grant you with a tax credit to continue funding these projects to ensure the betterment of technology.

Technical Content

It is important to identify the uncertainties and obstacles before testing can begin. But first, you need to provide an objective hypothesis for scientific and experimental research. Technical content refers to the definition of technological experimentation, performing development work in attempts to prove your hypothesis, and results in analysis of the work to prove you have succeeded or failed.

Technological Advancement

To be eligible for the SR&ED program, your research must create new knowledge above and beyond the public and private knowledge base, and may advance your understanding of underlying technology, where your experimental development activities resulted in new technological advancements. This means the technology must be improved from where it was at the beginning of the project.