Scientific Research and Experimental Development Tax Credit Program

Scientific Research and Experimental Development Tax Credit Program

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.

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. [cite web|url=http://www.cra-arc.gc.ca/E/pub/tg/rc4382/rc4382-e.html|title=Strategic Business Plan 2005|accessdate=2006-09-02]

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:cite web|url=http://www.cra-arc.gc.ca/taxcredit/sred/aboutus-e.html|title=About Our Program|accessdate=2006-09-02]
* 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: [cite web|url=http://www.cra-arc.gc.ca/E/pub/tp/ic86-4r3/ic86-4r3-e.html#P58_3054|title=IC86-4R3, Scientific Research and Experimental Development Information Circular|date=1994-05-24|accessdate=2007-08-14] :
* 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.

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.
* 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:

Provinces and territories may offer alternative or supplemental investment programs. Examples:
* Ontario small businesses may also claim the 10% Ontario Innovation Tax Credit.
* Alberta offers funding through its science and research investments grant program. [cite web|url=http://www.innovation.gov.ab.ca/inv/sec/ursi/pro/asrip_001_1.cfm|title=Alberta Science and Research Investments Program (ASRIP)|accessdate=2006-09-03]
* Prince Edward Island offers grants (non-repayable contributions) under various funds. [cite web|url=http://www.techpei.com/photos/original/techpei_rd_back.pdf|title=TechPEI - Research and Development Initiative|accessdate=2006-09-03]
* Northwest Territories and Nunavut provide a 15% tax credit under the Risk Capital Investment Tax Credits Act. [cite web|url=http://www.cbsc.org/servlet/ContentServer?cid=1089652659441&pagename=CBSC_FE%2Fdisplay&lang=en&c=GuideInfoGuide|title=The Risk Capital Investment Tax Credits Act|accessdate=2006-09-03]

ee also

* Industrial Research Assistance Program
* Western Economic Diversification Canada

External links

* [http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.html Scientific Research and Experimental Development Tax Incentive Program]
* [http://www.cra-arc.gc.ca/taxcredit/sred/prov-e.html Provincial and Territorial Government R&D Programs]
* [http://laws.justice.gc.ca/en/I-3.3/index.html Income Tax Act]

References


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