Posted on July 18, 2013
Written by Avner Polatsek | @AvnerPolatsek
Canada is known around the world as one of the biggest supporters of Scientific Research and Experimental Development, primarily through it’s SR&ED tax incentive program. Every year, the SR&ED program hands over $4 billion worth of investment tax credits (ITC) to over 18,000 Canadian corporations, sole proprietorships, partnerships and trusts.
That’s a lot of money up for grabs!
The point of the SR&ED program is to encourage Canadian businesses to pour their efforts into scientific and technological advancement in order to move their business forward which, in turn, helps Canada become a leader in these industries.
The idea of the government providing support for research goes way back to the 1940s, when the federal government first introduced tax deductions for research and development. Since then, the SR&ED program has helped to fund countless projects, continually uncovering new information by way of scientific research and experimental development.
The SR&ED program gives tax credits to Canadian businesses that are performing research to uncover new information.
“Any business that is involved in basic or applied research, or in advancing technology in order to improve or develop new materials, devices, products or processes may be eligible under the SR&ED program.” (CRA)
Full descriptions of basic research, applied research, and experimental development, can be found on the CRA website.
The Canadian government then provides refundable tax credits for a certain percentage of eligible expenses from this research and development.
Canadian-controlled private corporations can receive a tax credit for 35% of their qualifying expenditures up to the first $3 million. After that, they receive 20%. If you’re another kind of Canadian corporation, proprietorship, partnership or trust, you can receive 20% back.
Unlike some tax credits, the SR&ED program is refundable, which means that if your business ends up without a profit, you can get a cash refund for your research efforts.
The SR&ED program’s major draw is that it doesn’t require approval before the research and development can begin. If your expenses qualify and your research meets the requirements, you can claim this tax credit when you file your taxes.
If you have any questions about the SR&ED program, we highly recommend that you obtain the services of a tax specialist. The forms and guidelines are quite detailed and require some knowledge of the program to complete. Many people hold off on their research and development until they speak with a tax specialist to determine whether the expenses they are planning to incur will fall under the SR&ED category.
As always, we’re happy to help with the SR&ED program or with any other tax services you may need. AP Tax Group is a full service Toronto based accounting firm specializing in US and Canadian tax.