Navigating the SR & ED tax credit program

SR & ED is used to refer to the Scientific Research and Experimental Development program ran by the Canadian government by use of tax incentives as a way of encouraging businesses of all sizes in Canada to conduct research and also to engage in development in Canada.  

The research and development (R&D) approach through offering incentives sees the federal government provided over $3 billion to claimants annually. This program is overseen and appropriated by the Canada Revenue Agency (CRA). 

Forms of tax incentives  available through the SR $ ED program 

  1. Income tax deduction 
  1. Investment tax credit 
  1. Tax refund 

Who is eligible for the SR $ ED program 

Any organization that is involved in research and development can get these incentive packages from the government. The research and development activities can range from the development of a new product to improving an already existing product. 

However, qualification for the SR & ED incentives is not only pegged on the organization being a research and development (R & D) entity, the following conditions must also be fulfilled: 

  1. Most of the development and research work must be done in Canada. 
  1. The research work must be either basic research, experimental development, or applied research. Basic research is mainly in universities and research institutes and it is mainly aimed at advancing scientific knowledge without necessarily having practical work done. Applied research on the other hand deals with advancing scientific knowledge and at the same time aiming at practical work.  Experimental development aims at achieving advancement in technology. 

Works not considered as SR & ED  

  • Research for market trends and promotion of sales 
  • Testing of products and quality control 
  • Social sciences and humanities research 
  • Mineral, petroleum, and natural gas exploration and drilling 
  • Data collection 
  • Production of new and also improved devices and other products 

What is eligible for claim?  

Under the SR & ED incentive program, your business or organization can claim for incentives for expenditures that you incurred as you performed any eligible work in the SR $ ED category. These expenditures include: 

  1. Wages and salaries expenditures 
  1. Overhead expenditures 
  1. Material expenditure 
  1. Payments to a third party 
  1. Expenditures incurred in SR & ED contracts 

Process of applying for the SR & ED 

  1. The claimants must submit the claim within or before 18 months after a fiscal year. However, the Canadian Revenue Authority has always encouraged businesses to submit their claims within 6 months after the end of a fiscal year. This makes processing easy and fast. 
  1. The claimant must provide all the required documents such as documents for the project planning, experimentation plans, records of trial runs, progress reports, final reports for the project, prototypes, contracts, and others. 
  1. CRA is then giving time to review the work ad determine whether it qualifies for the SR & ED protocols based on technical reviews and also financial reviews which look into expenditures.