SR & ED is the performance of the company for research and development. It is the Canadian government program that offers tax incentives and refunds to companies that perform research and development within Canada. The federal tax program was introduced back in the 1980s and administered by the Canada Revenue Agency. The Canadian Government offers these tax incentives to encourage companies of all sizes; whether small or large to engage in Research and Development. With the high incentives and claimants for over 20,000 annually, SR&ED is the single largest federal program that encourages Research and Development in Canada. In addition to that, it has made Canada a more economically competitive country with its technological advancement set at a high bar.
Being one of the most generous programs in the world, one may be curious about how to qualify for the program. Any business that performs scientific research, applied research or experimental development is eligible for the program. The criterion of the work is under section 248(1) of the income tax and therefore, it is not a grant for there is entitlement. Therefore for eligibility, the work conducted must be either of the three:
The first being basic research similar to the one done in institutions and universities with an advance in knowledge but with no practical application. The applied research with work carried out for advanced scientific knowledge and doing it practically. Experimental development is carried out to achieve advancement in technology.
For eligibility, the work must be a systematic investigation that means that each approach you take to resolve uncertainty must be an experimental plan based on an idea. You then begin with a problem that you are unable to solve using experiments and technology before suggesting probable solutions and test them that will increase your scientific knowledge.
You will require to file a claim and provide the necessary data and documents to show eligibility to the CRA and therefore, evidence of your work is essential.
Examples of people who are most likely eligible for this program are: an incorporated academic where the most of them qualify, CRO involved in pharmaceutical trials, if you have an association with academic institutions or hospital, you are in a research organization or you have participated in data collection for any study.
Works that are not SR and ED include Sales promotion, Routine testing of material, or products, research in humanities, style changes, and routine data collection.
Benefits to the business
The SR & ED is beneficial to all kinds of the business in two ways: SR&ED expenditures that may include: salary and wages, raw materials, contracts, overhead and third-party payment, or SR& ED Investment Tax Credit to reduce your income tax payable. If eligible for any research evident work, ITC will be at least 15% and can be as much as 35% of your SR& ED expenditures.