This is the Canadian Scientific Research and Experimental Development Tax Incentive Program. Many companies are unaware that they can make an SRED claim. Almost any company may have SRED activities. If your company is involved in solving technological uncertainty, systematic investigation, and technological advancement, there is a chance that what you are doing is either partially or fully eligible for SRED credits. Most incorporated academics qualify for this program.
About SRED/SR & ED
It is the Canadian largest single source of government support program whose aim is to encourage companies to conduct research and development (R & D) that will lead to new, improved, or technologically advanced products, devices, materials, and processes. The program provides support in the form of tax refunds and/or credits to corporations, partnerships, or individuals who conduct experimental development or scientific research. The objectives of SRED/SR & ED are: to deliver tax incentives in a consistent, timely, and predictable manner; and to encourage businesses to prepare their claims in accordance with tax laws, policies, and procedures.
You must fall into these three categories:
Canadian-controlled private corporations
Individual Partnerships and Trusts
Your work must fall into these three categories:
Experimental development- must have technological uncertainty
Applied research – must conduct a systematic investigation for practical purpose
Basic research – must achieve technological advancement
Eligible costs included in expense calculation
The expenditures you can claim are those deducted as business expenses and those that qualify for Investment Tax Credit (ITC). You will receive the funds either in the form of a reduction in income tax payable or cash refunds or both. Maximum ITC depends on the company’s legal status and amount of qualified expenditures for SR & ED carried out in Canada. For Canadian – controlled private corporation (CCPC), it is 35% while for other Canadian corporations, it is 15% of all qualified expenditures.
The expenditures you can claim include:
Salaries and wages
Expenditures for materials
SR &ED contracts
Overhead directly related to R & D
SRED application process
You must file an income tax return along with form T661 expenditure claim form and either the T2SCH31 Investment Tax Credit form for corporations, or the T2038 Investment Tax Credit form for individuals. If you are a corporation, the Canadian Revenue Agency (CRA) requires you to file your claims 18 months from the end of the tax year in which you incurred the expenditure. The reviewers will assess eligibility and process the claim.
There are instances when the review committee finds it necessary to audit a claimant. You are strongly encouraged to keep all relevant documentation pertaining to the progress of their work such as plans, videos, protocols, purchase invoices, lease agreements, photographs, among others. Complete claims have a 60 – day turnaround while incomplete claims will have a longer turnaround.
Services are available
First–time Claimant Advisory Services
Public Information and Industry-specific Seminars
Please read the CRA’s eligibility of work for SR & ED Investment Tax Credit to help you determine if your work meets all the requirements. For more information about the SRED program, visit the CRA SR & ED website or the nearest coordinating tax services office.