SR&ED Frequently Asked Questions
What are SR&ED Tax Credits?
Scientific Research and Experimental Development Tax Credits are a tax incentive designed to encourage CA companies to invest in their research and development (SR&ED). The tax credits can allow a company to reduce their tax bill or claim cash credits as a proportion of their SR&ED expenditure over the qualifying period.
If my company is not profitable and does not pay taxes yet, is it still eligible for the SR&ED tax credit?
Your company is eligible for a refundable tax credit as long as it is a Canadian-Controlled Private Corporation. Other corporations can earn a non-refundable tax credit that can be applied to income taxes.
How do I know if I am doing the right type of SR&ED?
Applied Research - work undertaken for the advancement of scientific knowledge without a specific practical application in view. Basic Research - work done for the advancement of scientific knowledge with a specific practical application in view. Experimental Development - work done with the goal of achieving technological advancement to improve or create products, materials, & processes.
My project was completely unsuccessful. Can my Company still claim the SR&ED tax credit?
Yes. Failed, abandoned or postponed projects all qualify, so long as you can show your company had the intent of making a technological advancement on the project. As The CRA notes, "The key point is whether the work has the characteristics to meet the definition SR&ED."
Will my business qualify?
Businesses across many industries qualify for the SR&ED program. However, the nature of the R&D work you do is more relevant than your business sector when determining eligibility for the program.
Does the size of my business matter?
The SR&ED program is applicable for both small and large companies as well as partnerships and sole proprietorships. This is a great feature of the program as it includes startups in the pre-revenue stage all the way up to large commercial organizations. It is tied to expenses and not revenue, so as long as you are spending, you can claim.
How much can I claim back?
Individuals and trusts: Individuals (proprietorships) and trusts can earn a refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. You first must apply the ITC against tax payable before the CRA can refund 40% of the unclaimed balance of ITCs.
Can I claim for staff costs?
Yes. salaries and wages for staff engaged in the SRED projects can be claimed back.
Can I claim for sub-contractor costs?
If the subcontractor performs the work on behalf of the claimant and the development company is Canadian, it is the company hiring the subcontractor who has the right to claim the SR&ED tax credit. Also, the CRA says you must not be related to the contractor or have any control over them. You must have ownership of the work being claimed.
Can I claim for consumable materials?
The money you spend on any materials that you use for your research, whether you consume or transform them, can be included in an SR&ED claim. However you cannot claim for general materials or licenses.
What is the deadline for submitting a SR&ED claim? How long do we have to apply?
The reporting deadline is 18 months from the end of the tax year in which you incurred the expenditures if you are a corporation. Individuals have 17.5 months to file their claim.
Can I claim SR&ED if I have claimed CEBA loans and CEWS credits?
The CRA has confirmed that CEWS is considered government assistance and must be deducted from any SR&ED claims.
The CEBA is handled in a different manner. The interest free loan of up to $40,000 is not considered assistance in itself however, 25% of the loan can be written off if the loan is repaid by December 31, 2022. This associated write off would be considered "assistance" and would therefore reduce the organization’s SR&ED claim accordingly if the loan was used to pay for qualifying SR&ED expenditures.
Can I claim SR&ED if I have claimed CEBA loans and CEWS credits?
No. Reviewers of the SR&ED program are completely separate from those who perform normal tax audits at the CRA. These reviewers do not look at non-SRE&ED aspects of your business.