The Canadian government has a program to help you. In order to encourage research and innovation, the federal government created the Scientific Research and Experimental Development (SR&ED) program, administered by the CRA, and designed to give tax credits, including refunds, to qualifying businesses engaged in R&D. A Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures for R&D carried out in Canada, and 20% on any amount over $2 million.

 A refundable tax credit means simply that you are entitled to receive the amount of the credit in cash, even if your business makes no profit.

 What activities qualify as SR&ED?

Plenty. CRA considers SR&ED activities for income purposes to be a “systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis” and that falls into one of the following categories.

·         Basic research: work undertaken to advance scientific or technological knowledge without a practical application in view

·         Applied research: work undertaken to advance scientific or technological knowledge with a practical application in view

·         Experimental development: work undertaken to achieve a technological advancement in order to create or improve even slightly, materials, products, or processes,

·         Support work: work that directly supports and is commensurate with the needs of basic or applied research, or experimental development. Such work includes: engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.

 Are any activities excluded from the tax incentive program?

It is important to note that the Income Tax Act (‘ITA’) excludes certain activities from the SR&ED program: 

• Market research or sale promotion

• Quality control or routine testing of materials, devices, products, or processes

• Research in the social sciences or the humanities

• Prospecting, exploring, or drilling for or producing minerals, petroleum, or natural gas

• Commercial production of a new or improved material, device, or product, or the commercial use of a new or improved process

• Style changes

• Routine data collection

 What expenditures qualify?

Generally, the kinds of expenditures which qualify include: salaries and wages or employees performing the SR&ED work, SR&ED contracts, third party payments, materials (consumed or transformed), some overhead, equipment rentals, and equipment purchases.

 What are the benefits of the SR&ED program?

First and foremost, SR&ED expenditures generate a favourable tax treatment since current and capital SR&ED expenditures can be deducted in the year or carried forward indefinitely in order to minimize tax liability.  In addition, a taxpayer may also obtain an investment tax credit which may be applied against taxes payable or even refunded.  Unused and unrefunded ITCs can be carried back 3 years or carried forward 10 years.

How do I access the benefits of the SR&ED program?

Simple. Stephen Du, an experienced lawyer holding an accounting degree and partner of Du Markowitz LLP, will process your claim from start to finish. We also offer a full-service tax program to get your maximum entitlement from CRA.