Scientific Research and Experimental Development Tax Credit Program

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The Scientific Research and Experimental Development Tax Incentive Program (often referred to as simply SR&ED or SRED) provides tax incentives (in the form of tax credits and/or refund) to Canadian businesses to support applied research and experimental development conducted in Canada.

Contents

[edit] Background

Introduced in the 1980s, the SR&ED program is intended to encourage businesses of all sizes -- particularly small and start-up firms -- to conduct SR&ED that will lead to new, improved, or technologically advanced products or processes. As Canada's largest federal program in support of industrial R&D, SR&ED receives more than 11,000 claims annually for approximately $1.8 billion in tax credits.[1]

SR&ED expenditures (already deducted against revenue) may qualify for investment tax credits (i.e., a reduction in income taxes payable), cash refunds, or both. Qualified expenditures may include wages, materials, machinery, equipment, some overhead, and SR&ED contracts from the following activities:[2]

  • experimental development
  • applied research
  • basic research
  • support work

In order to claim such expenditures, an assessment on scientific or technological eligibility of the claimed activities need to be performed, according to three criteria:[3]:

  • Scientific or technological advancement
  • Scientific or technological uncertainty
  • Scientific and technical content

The Ministry of Finance is responsible for the legislation that governs the SR&ED program, while the Canada Revenue Agency is responsible for its administration.

[edit] Investment Tax Credit

Federally, the maximum Investment Tax Credit (ITC) depends on the company's legal status and amount of qualified expenditures for SR&ED carried out in Canada.[2]

  • Canadian-controlled private corporation (CCPC): the ITC is 35% of the first $2 million in qualified expenditures, and 20% on any excess amount.
  • Other Canadian corporations, proprietorships, partnerships, and trusts: the ITC is 20% of all qualified expenditures.

In addition, each province or territory may also provide provincial or territorial tax credits (subject to a cap) to qualifying corporations carrying out SR&ED in their respective province or territory:

Provincial / Territorial Investment Tax Credits
Province/Territory Rate
Alberta  
British Columbia[4] 10%
Manitoba[5] 20%
New Brunswick[6] 15%
Newfoundland and Labrador[7] 15%
Northwest Territories  
Nova Scotia[8] 15%
Nunavut  
Ontario[9] 20%
Prince Edward Island  
Quebec[10] 15%
Saskatchewan[11] 15%
Yukon Territory[12] 20%

Provinces and territories may offer alternative or supplemental investment programs. Examples:

  • Ontario small businesses may also claim the 10% Ontario Innovation Tax Credit.[9]
  • Alberta offers funding through its science and research investments grant program.[13]
  • Prince Edward Island offers grants (non-repayable contributions) under various funds.[14]
  • Northwest Territories and Nunavut provide a 15% tax credit under the Risk Capital Investment Tax Credits Act.[15]

[edit] See also

[edit] External links

[edit] References

  1. ^ Strategic Business Plan 2005. Retrieved on 2006-09-02.
  2. ^ a b About Our Program. Retrieved on 2006-09-02.
  3. ^ IC86-4R3, Scientific Research and Experimental Development Information Circular (1994-05-24). Retrieved on 2007-08-14.
  4. ^ Scientific Research and Experimental Development Tax Credit. Retrieved on 2006-09-03.
  5. ^ Manitoba Finance. Retrieved on 2006-09-03.
  6. ^ RESEARCH AND DEVELOPMENT TAX CREDIT. Retrieved on 2006-09-03.
  7. ^ Finance - Scientific Research and Experimental Development. Retrieved on 2006-09-03.
  8. ^ Nova Scotia Research and Development Tax Credit. Retrieved on 2006-09-03.
  9. ^ a b ONTARIO BUSINESS-RESEARCH INSTITUTE TAX CREDIT. Retrieved on 2006-09-03.
  10. ^ Additional Tax Credit for Scientific Research and Experimental Development. Retrieved on 2006-09-03.
  11. ^ Research and Development Tax Credit. Retrieved on 2006-09-03.
  12. ^ Yukon Research and Development Tax Credit. Retrieved on 2006-09-03.
  13. ^ Alberta Science and Research Investments Program (ASRIP). Retrieved on 2006-09-03.
  14. ^ TechPEI - Research and Development Initiative. Retrieved on 2006-09-03.
  15. ^ The Risk Capital Investment Tax Credits Act. Retrieved on 2006-09-03.