SR&ED stands for Scientific Research and Experimental Development. The SR&ED tax incentives are a method of encouraging all businesses in Canada to do research & development(R&D) regardless of the business size.
There are two forms of SR&ED tax incentives, and they are:
- An investment tax credit (ITC) which could be either refundable or non-refundable.
- A deduction against net income.
Investment Tax Credit
ITCs are at least 15% and can be as much as 35% depending on the business’ SR&ED expenditures. An excess in ITC in the current year will lead to refunds and any other unused ITCs can be used to pay taxes 3 years back or 20 years forward and any other payable tax.
Deduction Against Net Income
A business can use the deductible SR&ED incentives available to them to reduce their net income in the current year or deduct them in the future, for tax purposes.
What A Business Can Earn
Individuals and trusts, corporations, Canadian-controlled private corporations, and memberships of a partnership etc. are all eligible to claim from SR&ED tax incentives.
Individuals and trusts
On the qualified SR&ED expenditures, individuals and trusts can claim a refundable ITC of 15%. This must be applied to the tax payable before CRA can refund the unclaimed ITCs earned in the current year.
Canadian-Controlled Private Corporations
Most businesses in this category are allowed a maximum of $3 million in expenditure and earn a refundable 35% in ITC up to the expenditure limit. These businesses can also earn a non-refundable 15% in ITC over their expenditure limit. 40% of the ITC earned at 15% can be refunded if a Canadian-controlled private corporation meets the definition of a qualified corporation.
Corporations
Businesses in this bracket can claim a non-refundable ITC of 15% on qualified expenditure which can be used to reduce tax payable.
Partnerships
This grade of businesses cannot earn Investment Tax Credits as they are not taxpayers. The ITC is calculated at this partnership level and allocated to qualified members (i.e., individuals, trusts. Corporations.).
For more information on a partnership claim for SR&ED, read the SR&ED Claims for Partnerships Policy.
For other information on SR&ED, attend an info session; Find out about them HERE.
Find what qualifies for SR&ED tax incentives HERE and how to apply for SR&ED tax incentives HERE
You can also contact the SR&ED Outreach Program, a resource to educate potential claimants about the SR&ED tax incentives, by calling your tax services office to request a visit.