The SR&ED work must be a systematic investigation or search through experiment or analysis. To qualify for SR&ED tax incentive, the work must be either basic research, applied research or experimental development.
Basic research: This is work carried out to advance scientific knowledge without a practical application in view. It is usually done in universities or research institutes.
Applied research: This is also work carried out to advance scientific knowledge but, unlike basic research, it is carried out with a desire to achieve a specific practical outcome.
Experimental development: This work is carried out to achieve technological advancement for the purpose of creating new, or improving existing products, materials, devices, processes, methodologies including incremental improvements. It is also the most common type of SR&ED work. This work is not limited to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research. The work should involve solving technological uncertainty while trying to develop or improve the material, device, product or process. This means that SR&ED work you undertake to resolve your uncertainty should be a planned experiment based on an idea or a concept. You start with a practical problem that you cannot solve with your existing scientific or technological knowledge base. Then, you suggest new ideas for solving that problem and you test them.
The following types of work are not SR&ED:
- Market research or sales promotion
- Quality control or routine testing of materials, devices, products or processes
- Research in 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, product or process
- Style changes
- Routine data collection
Following questions you need to ask yourself to find out if your SR&ED work is eligible for a claim:
Are you researching or developing a new material, device, product, or process in order to carry out your operations or generate revenue, and this represents a technological advancement or innovation from the way things were done previously?
Are you attempting to resolve a technological uncertainty or overcome a technological obstacle, which cannot otherwise be resolved or overcome through the technology and information available to competent professionals in your industry?
Are you applying the scientific method in conducting the research and development? Is your process outlined like any other scientific research, with a hypothesis, apparatus, testing parameters, results, conclusions?
If you answered “yes” to these questions, then you are eligible for SR&ED funding! We can help you with every step of that process. Contact us now to find out how to get started.
Can the work I do with my firm be considered research and development?
Don’t be fazed by the limited manpower and resources you might be able to dedicate to your research and development. The SR&ED program is aware that most applicants are not Google or Apple. So long as you are not able to complete your research and development using materials available entirely within the public domain, and your work is conducted in accordance with the three requirements listed above, you are likely to be eligible for SR&ED funding.
What kinds or expenditures are eligible to be reimbursed through the SR&ED program?
The following expenditures would qualify for SR&ED funding:
Salaries for those involved in the research and development – including the proprietor or director of the firm – and subcontractor payments for services related to the same.
Material costs (purchases, fixed asset acquisitions, supplies, etc.) required to execute research and development.
How much money will we receive from the SR&ED program? What are SR&ED tax incentives?
Businesses can receive following three benefits from the SR&ED incentive program if they meet the required eligibility criteria:
- A full tax deduction in the year that such expenditures are incurred.
- The ability to "pool" SR&ED expenditures, which enables you to carry over deductions to the extent that they are not needed currently.
- Eligibility for attractive investment tax credits (ITCs), which can be refundable in cash if you don't need them to reduce current taxes payable. Most SR&ED eligible businesses
Canadian-controlled private corporations (CCPCs) take advantage of ITC on qualifying expenditures.
All qualifying research and development carried on in Canada is eligible for a 15% federal tax credit. For Canadian controlled private corporations with expenditures of less than $3 million per year, the rate is increased to 35%, and all amounts are fully refundable. In addition to these federal credits, on the provincial level, tax credits range from 4.5% to 37.5% depending on the province. Ontario has several different programs that firms may be eligible for depending on their circumstances, with rates that vary depending on the program.
- Ontario innovation tax credit (OITC)
- Ontario business-research institute tax credit (OBRITC)
- Ontario transitional tax debits and credits
- Ontario research and development tax credit (ORDTC)
We can help you to determine which provincial refund programs your firm might be eligible for.
In addition, specific industries (including but not limited to information technology, media, video games, and film) are eligible for further credits, called Enhanced Tax Credits.
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