The Scientific Research and Experimental Development Tax Incentive Program (often referred to as simply SR&ED or SRED, pronounced "shred") 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.
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Introduced in the 1980s, the SR&ED program is intended to encourage businesses of all sizes, particularly small to medium and start-up firms, to conduct applied research and development (R&D) that will lead to new, improved, or technologically advanced products, processes, principles, methodologies, or materials. As Canada's largest federal program in support of industrial R&D, the SR&ED program provides over $4 billion in investment tax credits (ITCs) to over 18,000 claimants each year. Of these, about 75% are small businesses.[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. Qualifying expenditures may include wages, materials, machinery, equipment, travel and training expenses, property taxes, utility expenses some overhead, and SR&ED contracts from the following activities:[2]
In order to claim such expenditures, an assessment on scientific or technological eligibility of the claimed activities needs to be performed, according to three criteria [3]:
The Department of Finance is responsible for the legislation that governs the SR&ED program, while the Canada Revenue Agency is responsible for its administration.
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]
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:
| Province/Territory | Rate |
|---|---|
| Alberta[5] | 10% |
| British Columbia[6] | 10% |
| Manitoba | 20% |
| New Brunswick | 15% |
| Newfoundland and Labrador[7] | 15% |
| Northwest Territories | |
| Nova Scotia | 15% |
| Nunavut | |
| Ontario[8] | 10% |
| Prince Edward Island | |
| Quebec[9] | 37.5% |
| Saskatchewan[10] | 15% |
| Yukon Territory | 20% |
Provinces and territories may offer alternative or supplemental investment programs. Examples:
For tax years ending after 31 December 2008, CRA will only accept the new 2008 version of the Form T661. Significant changes include modifications to the “Part 2 project information” section that details the scientific and technological aspects of the SR&ED projects claimed, which has been restructured from free-flowing questions to a direct question format. [2]
In 2010, the CRA has issued a new T661 (10).
The ESAT is CRA’s web-based tool that is used to determine through a series of concise questions if work performed has a likelihood of meeting SR&ED requirements for funding. The ESAT is mainly intended for potential claimants in the small to medium business sector, and for those who are new to the SR&ED program.
A Canadian SRED Association is currently in the works with the goal of representing and serving a network of professionals who prepare technical and financial SR&ED claims, as well as the companies conducting Research and Development. Led by a board of directors that includes some of the most respected and experienced individuals currently working in the SR&ED field, the Association will provide an inclusive and collaborative forum to promote knowledge and understanding of issues and procedures relating to SR&ED. The Association will strive to provide leadership by developing a voluntary, non-governmental professional accreditation for claim preparers, as well as regular education seminars to complement the CRA SR&ED information sessions. The Association plans to advocate on behalf of its members for policy and program efficiency at the federal and provincial level.
Since the SR&ED program is a tax credit administered by the Canadian government, several firms provide financing to claimants, secured by anticipated receipt of those tax credits, for both pre-file and post-file claims. This allows a company expecting a claim to receive funds immediately, rather than the possible 120, 240 or 365 day processing times outlined by the CRA.
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