If your business engages in research and technological advancements, it may qualify for tax credit incentives from the Scientific Research and Experimental Development Program.
Annually, the Scientific Research and Experimental Development Program disburses over $3 billion in tax incentives to more than 20,000 claimants. This program was implemented to help fuel innovation in Canada through providing significant tax benefits to those who engage in research and development. In fact, it is the largest program administered by the Canada Revenue Agency to support and reward businesses conducting research and development in Canada. This guide will provide you with the essential information that you need to know about the program to determine if you qualify and how to apply.
What is the Scientific Research and Experimental Development Program?
The Scientific Research and Experimental Development Program provides investment tax credits and expense deductions to businesses for eligible expenditures related to the scientific research and experimental development they are engaging in. These expenditures may include wages, materials, equipment, and overhead costs.
Eligibility
To qualify for Scientific Research and Experimental Development tax credits, all research and development for which a claim is made must take place in Canada. Sole-proprietorships, corporations, partnerships, and trusts are all eligible for the program. However, Canadian-controlled private corporations receive additional advantages, such as being able to claim an investment tax credit rate of 35% for up to three million dollars of eligible expenditures and 15% for any additional eligible expenditures.
All work for which expenditures are being claimed must be done for the advancement of scientific knowledge or for the purpose of achieving a technological advancement. The work that the claim is related to must also be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.
Work that is eligible for the program includes:
- Basic Research, which is done to advance scientific knowledge without a practical application in view;
- Applied Research, which is done to advance scientific knowledge with a practical application in view;
- Experimental Development, which is done to generate or discover technical knowledge or know-how in order to develop or improve materials, devices, products, or processes, including incremental improvement;
- Support Work, which is related to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, and directly supports the needs of the basic research, applied research, or experimental development work being done.
Work that is not eligible for the program includes:
- Market research or sales promotions;
- Quality control or routine testing;
- Social sciences or humanities research;
- Style changes;
- Routine data collection;
- Commercial production of a new or improved material, device, or product;
- Commercial use of a new or improved process;
- Prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas.
Making Claim
In order to claim Scientific Research and Experimental Development tax credits, you must apply within eighteen months from the end of the tax year in which eligible expenditures were incurred. To submit your claim, you must identify and describe all work that is eligible, calculate all eligible expenditures, and keep supporting documentation to substantiate your claim.
Once your claim has been approved, your Scientific Research and Experimental Development tax credits may be refunded to you, used to reduce your taxes payable, or carry them forward for up to twenty years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.