The Scientific Research and Experimental Development (SR&ED) Program is a federal Canadian tax incentive created to encourage businesses of all sizes to invest in research and development projects that introduce or improve upon the technology. As with any grant or tax credit, there is an application process you’ll have to go through in order to gain acceptance. Our specialized SR&ED consultants at CI Solutions will guide you through a successful application to help you gain the full funding you’re entitled to.
Our trained IT grant consultants will provide a thorough process to ensure your team is informed of all the relevant SR&ED procedures and guidelines. Over 20,000 Canadian businesses have successfully received over $3 billion in SR&ED credits. We’ll help take your business project to the next level by answering questions you may have about the SR&ED process. We’ll go over what it entails, how the SR&Ed tax credits work, how they’re calculated, and if the credit expires.
What is An SR&ED Refund?
An SR&ED refund is essentially a federal tax incentive used for the in-house costs of performing research and development work in Canada. Any Canadian-owned business involved in this area can apply for a refund and many successful businesses have had significant financial assistance. The program was made to support research and innovation within Canadian companies by compensating for funds incurred on experimental work. This special tax incentive can be used to pay back employee wages, sub-contracts, and material expenses.
Eligible work often includes experimental development, applied research, and basic research. This work can support several different industries such as engineering, operations research, design, computer programming, mathematical analysis, data collection, psychological study, and general scientific testing.
Work that is not eligible often ranges from market research, sales promotion, quality controls of products, social science or humanities research, commercial production, data collection, and mineral or natural gas production.
Our team of SR&ED consultants at CI solutions will help you know if your work is eligible for the incentive and help you construct your application. Next, let’s go over how the SR&ED tax credits work for businesses.
How Do SR&ED Tax Credits Work?
The SR&ED program provides Canadian businesses with two types of tax incentives. The first incentive involves a basic deduction to reduce the income taken in by a project over the year. This can be applied for yearly tax purposes and must be filed accordingly with Canada Revenue Agency guidelines.
The second type of incentive is an investment tax credit. This is a little more flexible than a basic income tax deduction for businesses. A business can either deduct their SR&ED to reduce their tax liability in the current year or carry them forward indefinitely to use in future years. A business can also receive a refundable SR&ED investment tax credit to reduce their end-of-year taxes payable.
Additionally, you can only claim salaries for your workers directly related to eligible SR&ED activities. Any other effort or work that does not directly support the SR&ED project cannot be claimed and used. This includes tasks like routine software development and routine quality control testing.
It’s very important you track both eligible and ineligible SR&ED activities on a tracking sheet to ensure you can operate on full work period. It also helps to enable reclassified time in the case something was mismanaged or not taken into account. Our SR&ED consultants can help you organize eligible work for the SR&ED program, including how the tax credits are calculated.
How Is SR&ED Calculated?
SR&ED tax credits and refund calculation can vary depending on the type of project used for the application and the size of your company’s business. The amount of resources spent on research, development, and experimentation is also taken into consideration. Although the government cannot control how you use the SR&ED credits, it’s good practice to set updated documentation and record activities as simple and useful as possible.
After you have successfully been granted an SR&ED tax credit, it can take around three to four months to receive it if you simultaneously submit the T2 Corporate Income Tax return and SR&ED claim documents.
Do SR&ED Credits Expire?
This is somewhat of a complicated question, but SR&ED credits will generally carry forward to the subsequent year if it’s not instantly applied. They may be used for taxes payable in the new year if businesses want to keep hold of them. The number of tax years this can be done greatly depends on Canadian tax laws, which our consultants will guide you through. Nevertheless, consider keeping a record of what you used the SR&ED tax credit for because it could expire if it’s not applied to any work.
CI Solutions represents many reputable clients and has worked with them to successfully gain SR&ED tax credits over the years. Contact our IT grant consultant team today to get started on funding your next project!