So, you’re conducting scientific research and/or experimental development in Canada and decided you would rather not leave free money on the table. Bravo! However, you may be a little confused on what exactly qualifies as SR&ED Eligible Expenditures.
When it comes to what to claim and how much you’ll receive, there are three categories that it can fall into:
Salaries or wages you pay your employees and owners while conducting the project are covered up to 69%.
Fees paid to Canadian subcontractors throughout the project are covered up op 36%
Whether transformed or consumed, money spent on materials for the project are covered up to 45%.
In addition to the Federal program, many provinces and territories have their own programs that can support your project even further.
Ontario has three programs:
Program: Ontario research and development tax credit
Rate/Percentage: (Non-Refundable) 15%
Maximum Credit: none
Program: Ontario innovation tax credit
Rate/Percentage: (Refundable) 8% on up to $3 million in eligible expenditures
Maximum Credit: $240,000
Program: Ontario business research institute tax credit
Rate/Percentage: (Refundable) 20% on up to $20 million in eligible expenditures
Maximum Credit: $4 million
Special Note: This credit is only available for work performed in Ontario under contact with eligible research institutes
If you are looking for programs in other provinces or territories, check out this blog for more information.
Check Out Another Blog: SR&ED Outside Canada: Expenditures and Support Work
What Is NOT Eligible?
While knowing what can be claimed is important, it’s equally important to know what is not eligible.
The following is a list of things that are referred to as “Excluded work” and cannot be claimed:
- Researching or studying fields related to humanities and/or social sciences
- Working to produce or exploit minerals or natural gases
- Frequently gathering the same data
- Collecting information as a part of your business’s sales promotion and market research
- Testing the quality of any product, service, or material good
- Controlling the quality of your production services
Any other reasons to conduct scientific research besides basic research, applied research, and experimental development do not fall in the SR&ED eligible expenses category.
Ask Yourself These 5 Questions
As a final way to ensure the intent of your project will align with the SR&ED program, ask yourself these 5 questions:
- Was there a scientific or technological uncertainty?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experimental or analysis?
- Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
- Was a record of the hypotheses tested and the results kept as the work progressed?
When it comes to SR&ED, you’ll want to make sure your claim is correct. If mistakes are made, you could lose out on thousands of dollars in tax credits, or even worse, the claim is denied outright.
The best piece of advice we can give is to make sure you have a SR&ED expert on your side.