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Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

Scientific Research and Experimental Development (SR&ED) Tax Incentive Program. What is the SR&ED Program?. A tax incentive program designed to encourage R&D in Canada Annually, the program provides over $4 billion in Investment Tax Credits (ITC’s) to over 18,000 claimants.

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Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

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  1. Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

  2. What is the SR&ED Program? • A tax incentive program designed to encourage R&D in Canada • Annually, the program provides over $4 billion in Investment Tax Credits (ITC’s) to over 18,000 claimants.

  3. How can the Program benefit my company? • The program provides financial incentives that help to: • Fund the scientific and technological advances that keep your company competitive • Better position your company for future SR&ED projects

  4. What are the Incentives? • The incentive is in the form of an Investment Tax Credit (ITC) which is earned on qualifying expenditures. • The ITC earned may be at a rate of 20% or 35% and may be up to100% refundable • Expenditures incurred (including capital) qualify for immediate write off, or indefinite carry forward • Pooling concept for both Expenditures and ITC

  5. Who is Eligible • Canadian Controlled Private Corporations (CCPC) • Corporations, other than, Canadian Controlled Private Corporations • Proprietorships, Partnerships and Trusts

  6. What is SR&ED? • The work must fall into one of the following categories: • Basic Research – Work done to advance scientific knowledge without a specific practical application in view • Applied Research – Word done to advance scientific knowledge with a specific practical application in view • Experimental Development – Work done to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes

  7. What is SR&ED? • Support Work - Work that is commensurate with and in direct support of the above which includes only these 8 activities: - engineering - operations research - design - mathematical analysis - data collection - computer programming - testing - psychological research

  8. What is not SR&ED? • Market research or sales promotion • Quality control or routine testing of materials and devices • Research in the social sciences or humanities • Prospecting, exploring or drilling for, or producing minerals, petroleum or natural gas • Commercial production of a new or improved material, device or product or the commercial use of a new or improved process • Style changes • Routine data collection

  9. What are the Eligibility Requirements? The work must be: • A systematic investigation or search • Carried out by means of experimentation or analysis • In a field of science or technology • Undertaken for: • Achieving technological advancement or • Advancing scientific knowledge

  10. What Expenses Qualify? • Wages • Materials • Contracts • Equipment • Third Party Payments • Overheads

  11. Overhead Claiming Methods Proxy • expenses claimed are limited to direct costs, no overheads • in lieu of overheads, claim 65% of direct labour costs Traditional • claim direct costs plus incremental overheads costs • must track incremental overheads.

  12. How do I make a Claim? • A claim is normally filed with the Income Tax Return for the year. • Two forms must be completed and filed with the Tax Return, forms T661 and T2038 (Sch 31). • Form T661 provides a technical write-up of the project(s) and costs claimed. • Form T2038 (Sch 31) calculates the amount of ITC and any refund claimed.

  13. What is the Review Process? • When a claim is received it may be subject to a two part review: 1) A Science review determines the eligibility of the activities undertaken. 2) A Financial review ensures the costs for the activities are correctly allocated.

  14. What are the Service Standards? • For CCPC’s our goal is to process the claim within 120 days of receiving a complete claim • For non-CCPC’s our goal is to process the claim within 365 days of receiving a claim

  15. Partnering - Our Respective Roles • CRA Responsibility: • Maximize client participation • Streamline program administration • Maintain the program’s fiscal integrity • Claimant Responsibility: • Self awareness of the program and its requirements • File the claim on time • Maintain proper books and records • Work with program representatives to maximize benefits

  16. Services We Provide • First time claimant service • Pre-claim Project Review (PCPR) • Account Executive Service

  17. Who can I contact? Jim Simpson Financial Review Manager Edmonton Tax Services Office (780) 495-2595 Email: jimt.simpson@cra-arc.gc.ca Website: www.cra-arc.gc.ca/sred

  18. Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

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