Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
Canada
Scientific research and experimental development tax credit
grant_single_labels|summary
grant_single|eligibleFinancing
- grant_single|projectCostPercent
grant_single|deadlines
- grant_single|timelineUnspecified
grant_single|financingType
Tax Credits
grant_single|eligibleIndustries
- grant_single|allIndustries
grant_single|grantors
- Canada Revenue Agency (CRA)
- Government of Canada
grant_single|status
grant_card_status|open
grant_single_labels|preview
If your business is engaged in scientific research and experimental development (SR&ED), you can claim a deduction against income or earn an investment tax credit (ITC)
grant_single_labels|projects
Projects eligible for this grant include scientific research and experimental development activities aimed at advancing scientific knowledge or achieving technological advancements. These activities can fall under basic research, applied research, experimental development, or support work directly tied to these categories.
- Basic research aimed at advancing scientific knowledge without specific practical applications
- Applied research to advance scientific knowledge with practical applications
- Experimental development to create new, or improve existing, materials, devices, products, or processes
- Support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research directly supporting the eligible research and development activities
grant_single|admissibleProjectsExample
$450,000
Ottawa
Improve battery efficiency for electric vehicles through experimental materials science research
$400,000
Toronto
Develop a new carbon capture technology for reducing greenhouse gas emissions
$300,000
Halifax
Conduct basic research on quantum computing algorithms
$320,000
Vancouver
Develop AI-driven personalized medicine solutions to improve patient outcomes
$240,000
Guelph
Conduct applied research on sustainable agriculture practices to increase crop yields
$300,000
Calgary
Create a new software platform for real-time traffic management using experimental development
grant_single_labels|admissibility
Work is eligible for SR&ED tax incentives if it meets both the "Why" and "How" requirements as defined in the Income Tax Act. The work must be conducted for the advancement of scientific knowledge or technological advancement and must follow a systematic investigation or search through experiment or analysis.
- Work must be conducted for the advancement of scientific knowledge or for technological advancement.
- Work must involve resolving scientific or technological uncertainty.
- Systematic investigation or search must be carried out by means of experiment or analysis.
- Basic research: Work undertaken without a specific practical application in view.
- Applied research: Work undertaken with a specific practical application in view.
- Experimental development: Work undertaken to achieve technological advancement to create or improve materials, devices, products, or processes.
- Support work must be directly in support of basic research, applied research, or experimental development and fall under one of these categories: engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research.
- Excluded work includes market research, sales promotion, quality control, routine testing, research in social sciences or humanities, commercial production or use, style changes, and routine data collection.
grant_eligibility_criteria|who_can_apply
Corporations, individuals, trusts, and partnerships in Canada that conduct scientific research and experimental development (SR&ED) may be eligible for SR&ED tax incentives. These entities can claim deductions and earn investment tax credits for their eligible SR&ED work.
- Corporations
- Individuals
- Trusts
- Partnerships
grant_eligibility_criteria|who_cannot_apply
Some types of companies may not be eligible for the Scientific Research and Experimental Development (SR&ED) tax incentives. The eligibility criteria typically exclude companies that do not conduct eligible research and development work in Canada.
- Companies that do not conduct eligible research and development work in Canada
grant_eligibility_criteria|eligible_expenses
Eligible expenses for the SR&ED tax incentives include various types of work performed to achieve scientific and technological advancements. These expenses must be meticulously documented to support your claim.
- Experimental development costs
- Basic research expenditures
- Applied research costs
- Support work expenses (engineering, design, etc.)
grant_single_labels|criteria
The evaluation and selection criteria for the Scientific Research and Experimental Development (SR&ED) tax incentives emphasize scientific or technological advancement and a systematic approach to the work. Ensure that your work meets the "Why" and "How" requirements to be eligible.
- Work performed for the advancement of science or technological progress.
- Presence of scientific or technological uncertainty that justifies the work.
- The work must be conducted through a systematic scientific or technological investigation or research, carried out through experimentation or analysis.
- Categories of eligible work: experimental development, pure research, applied research.
- Supporting work must be proportional to the needs and directly support the SR&ED.
- Exclusion of work related to market studies, routine quality control, research in social or human sciences, prospecting, commercial production, style modifications, and routine data collection.
grant_single_labels|register
- Step 1: Identify eligible work
- Determine if your work is conducted for the advancement of scientific knowledge or technological advancement.
- Ensure your work involves systematic investigation or search carried out in a field of science or technology by means of experiment or analysis.
- Step 2: Group eligible work into a project
- Describe the SR&ED work and include the advancement achieved through the project.
- Separate eligible work from other activities, ensuring it aligns with SR&ED definitions and requirements.
- Step 3: Calculate SR&ED expenditures
- Identify and calculate all allowable SR&ED expenditures incurred in the year.
- Understand how other government R&D funding impacts your eligible expenditures.
- Step 4: Claim a deduction and earn an investment tax credit (ITC)
- File your claim together with your income tax return for the year.
- Ensure you follow provincial and territorial tax credit regulations as they impact your SR&ED claim.
- Step 5: Keep supporting documentation
- Document all work conducted, who performed it, and when it was done.
- Keep evidence generated during the work and supporting financial records.
- Step 6: Involve senior technical and financial personnel
- Engage staff with in-depth knowledge of SR&ED work and company financial records.
- This ensures the claim's accuracy and completeness.
- Step 7: Submit your claim before the deadline
- Know your SR&ED reporting deadlines based on your tax identification (corporation, trust, individual).
- Submit your claim early to avoid missing the deadline and avoid any changes after the deadline.
grant_single_labels|otherInfo
The guidelines outline the specifics on Scientific Research & Experimental Development (SR&ED) tax incentives, offering clarity on eligibility requirements and steps for claiming deductions. They stress the importance of proper documentation to support SR&ED claims and provide a comprehensive breakdown of eligible and ineligible work.
- Basic research aims to advance scientific knowledge without specific practical applications.
- Applied research is directed towards scientific knowledge with practical applications in view.
- Experimental development focuses on technological advancements for new or improved products, devices, or processes.
- Support work includes engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.
- Excluded work includes market research, quality control, routine testing, social sciences research, prospecting for natural resources, commercial production or use of new/improved products and processes, style changes, and routine data collection.
- Proper documentation must show what work was done, who did it, when it was done, and how expenditures were calculated.
- SR&ED claims should be filed together with the income tax return for the year and must be submitted before the reporting deadline.
- Other government funding for R&D must be reported in the SR&ED claim and will reduce the amount of ITC you can earn.
grant_single_labels|contact
sredclprtlg@cra-arc.gc.ca
Apply to this program
Summary of Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
The SR&ED Tax Incentive Program in Canada offers businesses the opportunity to earn tax incentives by engaging in eligible scientific research and experimental development (SR&ED) activities. This program helps reduce income tax payable by allowing claims for SR&ED expenditures and providing investment tax credits (ITCs).
Detailed Explanation of the SR&ED Tax Incentive Program
The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program is one of the most significant federal government initiatives designed to support and foster innovation within Canadian businesses. Managed by the Canada Revenue Agency (CRA), the program aims to encourage businesses to conduct research and development activities that lead to new or improved technologies, products, materials, and processes. By providing financial incentives such as tax deductions and investment tax credits (ITCs), the SR&ED program helps reduce the financial risks associated with R&D investments, enabling companies to innovate and grow.
Eligibility Requirements for SR&ED
To qualify for SR&ED tax incentives, businesses must ensure that their activities meet the criteria set forth in the Income Tax Act. The definition of SR&ED encompasses systematic investigation or search carried out in a field of science or technology by means of experiment or analysis, and includes:
- Basic research undertaken for the advancement of scientific knowledge without a specific practical application in view.
- Applied research conducted for the advancement of scientific knowledge with a specific practical application in view.
- Experimental development aimed at achieving technological advancements by creating new or improving existing materials, devices, products, or processes.
Additionally, the work must address a scientific or technological uncertainty and be conducted using a systematic approach. These uncertainties arise when it is unknown whether a specific result or objective can be achieved due to insufficient available knowledge.
Types of Eligible Work
Eligible work under the SR&ED program can be categorized into three main types:
- Basic Research: Conducted to expand scientific knowledge without immediate practical applications. Typically pursued by universities and research institutions, basic research helps build foundational knowledge that can later be applied to technological advancements.
- Applied Research: Similar to basic research but with specific practical applications in view. Applied research is often conducted in laboratory settings and aims to solve specific problems or develop new technologies.
- Experimental Development: The most commonly claimed category, experimental development is undertaken to generate new technological knowledge through systematic investigation. This knowledge is then used to develop or improve materials, devices, products, or processes.
Support Work
Work that directly supports SR&ED activities, known as support work, can also be eligible for tax incentives. To qualify, support work must be commensurate with the needs and directly in support of basic research, applied research, or experimental development. Categories of support work include engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.
Excluded Work
Certain types of work are explicitly excluded from SR&ED eligibility, including:
- Market research or sales promotion
- Quality control or routine testing
- Research in the social sciences or humanities
- Prospecting, exploring, or drilling for minerals, petroleum, or natural gas
- Commercial production or use of new or improved materials, devices, products, or processes
- Style changes
- Routine data collection
It is essential to distinguish between support work and excluded work, focusing on the purpose of the activities. For example, data collection carried out specifically for SR&ED purposes is eligible, whereas routine data collection for normal business operations is not.
Claiming SR&ED Tax Incentives
Businesses engaged in SR&ED activities can claim deductions against their income and earn ITCs by following these basic steps:
- Identify and group eligible work into SR&ED projects.
- Describe the SR&ED activities and their scientific or technological advancements.
- Calculate SR&ED expenditures incurred during the year.
- Claim deductions and ITCs on the income tax return for the year.
It is recommended to submit SR&ED claims together with the income tax return to ensure timely processing. Proper documentation, including technical and financial records, is crucial to support the claim. The documentation should detail the work conducted, the personnel involved, the timeline of activities, and the expenditures incurred.
Investment Tax Credits (ITCs)
Businesses can earn ITCs to offset income tax payable. The ITC rate varies based on the type of corporation:
- Basic ITC rate: 15% for most corporations.
- Enhanced ITC rate: 35% for certain Canadian-controlled private corporations (CCPCs) on their first $3 million of qualified SR&ED expenditures.
In some cases, businesses may also earn refundable ITCs, which provide a cash refund if the ITC exceeds the income tax payable for the year.
Impact of Other Government Funding
Receiving other government R&D funding and assistance does not disqualify businesses from SR&ED eligibility, but it does affect the amount of ITCs earned. For instance, receiving NRC IRAP funding will reduce the ITC amount. Additionally, provincial and territorial R&D tax credits may be available, but they also reduce the SR&ED expenditures that can be claimed.
SR&ED Reporting Deadlines
Timely submission is critical to ensure SR&ED claims are accepted. The reporting deadline depends on the taxpayer’s type:
- Corporations: 12 months after the T2 Corporation Income Tax Return is due.
- Trusts: 12 months after the T3 Trust Income Tax and Information Return is due.
- Individuals with a business: 12 months after the T1 Income Tax and Benefit Return is due.
It is advisable to submit SR&ED claims before the reporting deadline and alongside the income tax return to avoid any penalties or rejections.
Best Practices for SR&ED Claim Preparation
To maximize the chances of a successful claim, businesses should consider the following best practices:
- Involve senior technical and financial personnel with in-depth knowledge of SR&ED activities and financial records.
- Maintain proactive and detailed recordkeeping throughout all phases of SR&ED work.
- Ensure accuracy in the information provided in the claim, whether completed internally or by a third-party consultant.
- Stay informed about the latest CRA guidelines and eligibility criteria for SR&ED activities.
Benefits of the SR&ED Tax Incentive Program
The SR&ED Tax Incentive Program plays a vital role in promoting innovation and technological advancements in Canada. By reducing the financial risks associated with R&D investments, the program encourages businesses to invest in innovative projects, ultimately contributing to economic growth and technological progress. The tax incentives help businesses manage their cash flow better, allowing them to reinvest savings into further R&D activities, hiring skilled personnel, and scaling up operations.
Conclusion
The SR&ED Tax Incentive Program offers significant benefits to Canadian businesses engaged in scientific research and experimental development. By understanding the eligibility requirements, identifying and documenting eligible work, and accurately preparing claims, businesses can take full advantage of the available tax incentives. Through this program, the Canadian government aims to create a supportive environment for innovation, fostering technological advancements that will drive the country's economic growth and global competitiveness.
