How Canada’s Scientific Research and Experimental Development Tax Credit Helps New Businesses

by - 3 min read

How Canada’s Scientific Research and Experimental Development Tax Credit Helps New Businesses

by admin - 3 min read

by admin

 

The scientific research and experimental development program, or SR&ED, is a Canadian tax incentive program that offers businesses working in research and development the opportunity to receive some money back, in the form of a tax credit on their eligible expenditures, from the Canadian Revenue Agency. Any privately-held Canadian company, individuals or trusts, members of a partnership, or other corporations are eligible to file for the credit, provided they’re doing some kind of basic or applied research or trying to make technological advancements in product development and/or service improvements.

Some of the most common sectors that have previously had applications approved include (but are not limited to) manufacturing, clean technology, information technology, oil and gas, biotech, chemical processing, food processing, electrical distribution, pharmaceutical, agriculture, and aerospace.

Canadian-controlled private corporations (CCPCs) may receive up to 35% back on eligible expenditures incurred during work on any scientific projects that meet the SR&RD criteria (listed below). For CCPCs, this could mean recovering up to 64% on salaries, 32% on subcontracts, and 42% on materials, which are all qualifiable expenditures. Most provinces also offer additional tax credits on top of what the SR&ED provides, on expenditures as well. Foreign companies or non-CCPCs receive less.

A company’s SR&ED tax credit or expenditures may also qualify for investment tax credits or ICTs, which they can receive as a reduction in income tax payable, cash refunds, or both. The SR&ED program allows many of these projects to stay competitive. The funds companies receive back can be reinvested in things like hiring new staff, buying new equipment, facility expansions, and paying off debts; the idea is that those returns go back into funding new resources and relieving at least some of the financial burdens or strains these projects might face.

To qualify for the credit, companies need to meet at least three criteria: (1) scientific or technological advancements; (2) scientific and technological content; (3) scientific or technological uncertainty.

Your company’s scientific project should be overcoming some kind of scientific uncertainty, and you need to prove that the work you’re doing is, in fact, trying to formulate a way to reduce or eliminate that uncertainty. There needs to be a systemic investigation involved, with the testing of a hypothesis present through experimental analysis, and the overall approach should result in some kind of a technological advancement made in the end. Data and findings should also be recorded.

If you’re concerned about your application, there are firms out there like Northbridge Consultants that can help guide you through the process and ensure that you don’t miss out on any significant details (or other government grants that you may be eligible for), and that your company receives the best return possible. It can be challenging to balance doing all the research and paperwork while still running a company, so hiring a consulting firm to assist with things can help to eliminate that stress and allow you to focus on your day-to-day business.

Finally, the SR&ED program serves as a great way for Canada to encourage and support the growth of science and technology within the nation, as the federal government has been previously criticized for not doing enough on that front. Programs like this one allow Canada’s science landscape to be more aggressive and diverse. Tax incentives and grants should motivate entrepreneurs, scientists, and STEM graduates originally from Canada, to want to stay in Canada and host their development projects here, while also attracting businesses from overseas who would want to do the same.

The main goal of the SR&ED program is to see Canada stay competitive with other nations that have been dominating the science and tech fields. Canada doesn’t yet have real competitor for Silicon Valley, but the hope is that someday, with the right resources, talent, and funding, it could.

 

Rhea Braganza | Staff Writer

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