2021 has been a year of big changes and transitions for businesses in the technology sector. The Scientific Research and Experimental Development Tax Incentive (SR&ED) is a special income tax credit (ITC) that can greatly benefit these types of businesses heading into 2022. Eligibility to secure SR&ED credits can be broad, but by relying on a reputable SRED firm in Canada with professional SR&ED Consultants, we’ll help you understand what the tax credit entails and how you can take advantage of it for your company. We’ll also break which businesses can qualify for the SR&ED tax credit and if they expire in Canada.
What is The SR&ED Investment Tax Credit Policy?
The SR&ED Tax Credit is an innovative provision, as defined in the Income Tax Act, to encourage scientific research (both basic and applied) and experimental development through the field of technology and analytical processes.
Basic research is scientific work undertaken to advance general scientific knowledge without a specific practical application plan. Applied research, on the other hand, is undertaken for the same reasons as the former, but places emphasis on a specific application. Experimental development is work done with the purpose of achieving technological advancement for both new and existing materials, devices, products, improvements, and/or processes.
You must be able to state why your initiative is important to the advancement of technology or knowledge. Additionally, you will also have to explain how your project will bring about significant changes and results, starting from the hypothesis to the practical stages.
Both Controlled Private Corporations (CPCs) and individuals owning businesses living in Canada are eligible to submit claims for the SR&ED tax credit. You will start by submitting a complete T661 form consisting of two parts to the Canada Revenue Agency (CRA). This form will have all the required technical information of your business that the government will use to calculate the ITC value. You can also look into filling out a T2SCH31 Investment Tax Credit form if your business is a corporation.
The SR&ED submission should be filed no later than 12 months after the initial filing deadline. While the process may seem daunting to some, the easiest solution is to rely on an SR&ED consultant to guide you through the process and help you stay on top of provincial tax credit schedules. They can also answer questions pertaining to the expiration of these credits.
Do SR&ED Credits Expire in Canada?
SR&ED credits and other ITCs can expire in Canada, but it depends on when it was earned and the number of tax years it remained valid. Tax credits that are not applied, refunded, or carried back may be brought forward and applied in the subsequent tax period.
For example, if you received an SR&ED tax credit or ITC in 2005, it can be carried forward for 10 tax years if not used. Due to legislation changes, Tax credits earned in 2006, 2007, 2008, and beyond can be carried forward 20 tax years. An SR&ED consultant or firm can provide helpful assistance in determining these timelines and when to apply for the tax credits.
Who Qualifies for SR&ED in Canada?
SR&ED qualification often looks for details on the scientific or technological content of your project. We already went over who is eligible for the tax credit, but there are a few more detailed steps to enhance your application.
First, include a description of the scientific or technological uncertainties your work or project is trying to address and overcome. Consider your objective and improvements you can make. Detail the initial knowledge base you had about the work going in and how it connects to these uncertainties.
Second, describe the work performed to overcome these uncertainties and how it demonstrated your hypothesis and the foundation of your overall research. You can list down your test results and conclusions you have reached during experimentation.
Lastly, break down your investigation and research and connect it with the new knowledge you have gained. List any technological advancements you achieved or failed to make and provide proof. Ultimately, you want to talk about the progress you accomplished or tried to accomplish in this section.
Start securing valuable SR&ED tax credits for your research and development project today by calling us at 1-844-742-2747 or contacting us HERE.