What are the SR&ED Tax Incentives?
The Scientific Research and Experimental Development (SR&ED) tax incentives are the largest program by the Government of Canada to support research and development. It provides more than $3 billion Canadian dollars in tax incentives every year to over 16,000 businesses. This incentive comes in three forms:
- Non-Refundable Investment Tax Credit (ITC) to reduce taxes owed in the year.
- If the tax payable is reduced to $0, the remainder of the non-refundable ITC can be used to recover taxes paid in the last three years or to reduce tax that may be owed over the next 20 years.
- Refundable ITC that can fund expenditures relating to Research and Development (R&D).
How You Receive these Tax Incentives
Your tax incentives under the SR&ED program will look like one of the following:
- Deductions against income.
- Investment tax credits (ITCs)
The value of these ITCs can range from at least 15% to a max of 35% on qualified SR&ED expenditures. Excess ITCs in the current year may result in a refund and unused ones can be used for the prior 3 years or future 20 years.
Eligibility for the SR&ED Tax Incentives
The work must meet the following criteria:
- The work is conducted for the advancement of scientific knowledge or to acheive a technological advancement.
- Systematic investigations or searches in science/technology via experiment/analysis.
Work Categories that are Eligible
- basic research
- applied research
- experimental development
Work that Directly Corresponds or Supports Eligible Work Categories
- operations research
- mathematical analysis
- computer programming
- data collection
- psychological research
Work that is Excluded from SR&ED Tax Incentives
- market research or sales promotion
- quality control or routine testing of materials, devices, products or processes
- research in the social sciences or the humanities
- prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
- commercial production of a new or improved material, device or product
- the commercial use of a new or improved process
- style changes
- routine data collection
Find out more information on the Government of Canada’s website under the CRA’s section about Scientific Research and Experimental Development (SR&ED) tax incentives by clicking here.