Owning a small business can be expensive so being able to earn tax credits is always beneficial. All types of businesses in Canada, including small businesses, can qualify for the Scientific Research and Experimental Development Programme or SR&ED (pronounced “SHRED”). But what is that?
SR&ED is a tax-based incentive programme that encourages businesses to take the time and money to invest in research and development for their companies or products. Earning this tax credit is easier than you think and you won’t need a huge lab and research department to qualify.
The Canadian Government offers this tax incentive program through the Canada Revenue Agency. A large percentage of the cost of research can be refunded by the CRA through this programme. 
 
Companies can either deduct eligible expenses from their income, or use the SR&ED investment tax credit (ITC) to reduce their income tax. Most times the refund comes back to you as cash, so it improves cash flow, and you can re-invest it back into your research team.

Which companies can apply to the SR&ED Tax Credit program?

Here is an overview of the type of corporation that can qualify for a SRED tax credit: 

  • Canadian controlled private corporation (CCPC) can claim 35% tax credit on anything earned up to $3,000,000 and 15% nonrefundable credit on anything over that. 
  • Other corporations (Publicly traded, Internationally-owned), as well as individuals and trusts can earn a 15% tax credit on all expenses of SR&ED projects that qualify during the tax year. 
  • Partnerships are not a taxpayer and therefore they can’t get a tax credit. However, the tax credit can be calculated for the partnership and then allocated to the members of the partnership.

What are qualifying expenditures for the SR&ED program?

As with any tax credit or incentive program, there are guidelines and qualifying expenditures the CRA has laid out to help corporations and businesses know what expenses are eligible SR&ED items they can claim on their taxes. In order to really understand what they are allowing for this program, we need to revisit the definition of SR&ED. 

SR&ED systematically investigates ways to improve the fields of science and technology. When filing for the SR&ED tax incentives you can claim anything that helped with this investigation, such as experiments that were performed or data analyzed.
Salary and wages paid out to those that helped with the technological advancement for the company or business can be claimed. 
Materials used to create or improve technical content are also eligible to be claimed in this tax incentive programme.

Any payments made to a third party (sub-contractors) during the experiments or the investigation that directly relates to R&D will qualify for the credit. 

Overhead can also be claimed when you file but the overhead needs to have a direct tie to the SR&ED project. 
There are certain things that can’t be claimed and sometimes it is easier to think about what isn’t eligible instead of what is eligible. For example, marketing research does not count as R&D so any expenses relating to market research would not qualify. 

The best way to think about it is this: if your technology development is gaining you an advantage or is new and novel, if a result can be published in a scientific journal, if your new knowledge advances science, or helps in clearing up a technological uncertainty, then it will most likely qualify. 

When you are filing a SR&ED claim it is vital that you have appropriate supporting documentation. Audits can happen for any reason, so it is better to be prepared. Tax fraud is taken very seriously by the CRA, as it should be. 

About Conceptinero

We are a full-service professional SR&ED Consulting Firm specialized in the Medical Science, Software and Manufacturing industries. We have a 95% success rate in getting CRA to refund up to 65% of your research and development costs.

We engage with you to assess the technical and financial viability and make sure your claim gets approved by CRA without an audit. We have submitted $50M in claims to the CRA. Over 320 claims were accepted as filed, for an average $146,000 per company.

Unlike larger SR&ED consulting firms, we offer full service from an individual consultant who gets to know your team and fully manages your CRA claim. We don’t expect you to do the heavy lifting, which means maximum results with minimal input from your team so you can focus on your business.

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