SR&ED is a large and complicated program with many guidelines but a big payoff. Understanding how it works is half the battle. A good place to start is right here.
What is SR&ED?
What Can It Offer Me?
Your claim can keep you in competition with other companies that are making strides to be cutting edge, or even just improving daily life in your industry. Therefore, if you are eligible for a claim, you can receive a tax incentive for each year that you participate in research and development, to develop new or improve existing materials, devices, products and processes.
You are eligible to receive a 35% ITC (Investment Tax Credit) from the federal government if you are a CCPC (Canadian-controlled private corporation). However, if you are a non-CCPC, you will not qualify for all of the same enhanced perks, but you may still be eligible to receive a 15% non-refundable tax credit on your investment expenditure. You may also be eligible for provincial SR&ED tax credits ranging from 3.5 – 20 %, whether you are a CCPC or non-CCPC.
The program also allows companies to pool together their eligible expenditures for a tax deduction that can be carried forward indefinitely.
Everyone’s situation is different. You will likely need to consult a professional who can give you reliable, relevant information!
Despite what many might think, you don’t have to be a science and technology company to qualify! SR&ED is not limited to just R&D lab work. Therefore, potential projects exist in any business scenario. As long as you are experimenting to discover innovative technologies and processes that will bring your industry forward and the project you are looking into is not already well known, you may qualify.
Some sectors include, but are certainly not limited to agriculture, manufacturing, energy, software, information technology and hospitality.
The most important aspect about qualifying for this process is the quality of your research, not the sector that your company falls under!
Here’s a quick checklist to see if your project will qualify you for the SR&ED refund:
- Are you considered an expert in your industry?
- Even if you have used pre-existing methods in your project, was there any element of experimentation? I.e. proposed solution development (advancing a hypothesis), was there trial and error?
- Do you have accurate/detailed notes and documentation of your progress?
Hopefully, you said yes to all of these questions. If you did, you may qualify for the SR&ED incentive. Your next step would be to contact a Maxim Innovation expert to consult.
How to File an SR&ED Claim?
There are two methods that you can use to file your claim: the Proxy Method and the Traditional Method. To claim the tax credit, you must complete the tax form T661 and submit it along with other SR&ED related tax schedules while filing your business’ taxes. You must submit your claim for SR&ED tax credits within 18 months of the company’s year end. If your SR&ED project is selected for a CRA review, the CRA will not review your entire company’s financials – rather they will only focus on the SR&ED related aspects of your tax filing.
Visit the Government Canada for a guide on how to file the tax form.