SR&ED (Scientific Research and Experimental Development Tax Incentive Program) – Canada Revenue Agency (2022)

Description:

The Scientific Research and Experimental Development (SR&ED) program uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada.

Comments on Funding:

These tax incentives come in three forms: an income tax deduction, an investment tax credit (ITC), and, in certain circumstances, a refund.

The SR&ED investment tax credit (ITC) ranges from 15% to 35% of the applicant’s qualified SR&ED expenditures.

Canadian-controlled private corporations (CCPC), generally, can earn a refundable ITC (investment tax credit) at the enhanced rate of 35% on qualified SR&ED expenditures of $3 million. They can also earn a non-refundable ITC at the basic rate of 15% on an amount over $3 million.

However, if the applicant is a CCPC that also meets the definition of a qualifying corporation, it also earn a refundable ITC at the basic rate of 15% on an amount over $3 million and 40% of the ITC can be refunded.

Other corporations can earn a non-refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. They can use the ITC to reduce tax payable.

Individuals (proprietorships) and trusts can earn a refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. They first must apply the ITC against tax payable before the Canada Revenue Agency can refund 40% of the unclaimed balance of ITCs earned in the year.  

Eligibility:

Applicants must be:

  • Canadian-controlled private corporations
  • other corporations,
  • individuals (proprietorships) and trusts, 
  • members of a partnership
  • doing research and development conducted, for the most part, in Canada and must be either basic research, applied research or experimental development.

Documentation Needed:

Applicants must:

  • file an income tax return (Form T2038, Investment Tax Credit for individuals and Schedule T2SCH31, Investment Tax Credit for corporations),
  • include a completed Form T661 to provide technical information and to calculate the qualified SR&ED expenditures used for the investment tax credit,
  • keep supporting information and records to prove that the SR&ED work was performed and allowable expenditures were made in the year ( documentation that is dated, signed and specific to the work performed, complete and organized records that support the claimed expenditures).

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