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What is the SR&ED
Tax Credit Program?

Credits for SR&ED

To maintain their competitive edge, many Canadian companies have come to recognize the importance of research and development, and invest significant amounts of time and money in it. If YOURS is one of these dynamic companies, you should know that the Federal government has set up a Scientific Research and Experimental Development (SR&ED) tax credit incentive program.

This incentive program seeks to encourage Canadian businesses of all sizes and from all sectors to pursue research and development in order to develop or improve products or processes, including new materials, devices and software.  Pure and applied research activities are also covered by the SR&ED credit.

The SR&ED Tax Credit Program is the biggest source of financial support for industrial research and development from the federal government, with several billion dollars paid out each year.

The Canada Revenue Agency (CRA) is responsible for administering the SR&ED tax credit program and determining the scientific eligibility of submitted projects as well as the eligibility of expenses (at the Federal level only). The Federal Department of Finance Canada is responsible for the underlying legislation of the program.

The provinces offer also an incentive program to encourage businesses to invest in SR&ED. Provinces are responsible only for determining the credit rates they grant and the type of SR&ED expenses that are provincially eligible.

Note: The information provided in this section (SR&ED Program) is drawn mainly from the CRA website and is for reference purposes only.

What projects are eligible?

To qualify for the SR&ED program, research & development projects must fall into one of the following categories:

Basic research projects

to advance scientific knowledge with no specific practical application

Applied research projects

to advance scientific knowledge for a specific practical application

Experimental development projects

to achieve technological advances in order to create new materials, devices, products, or processes or to improve existing ones, even slightly

Support work

in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research if the work is in proportion with, and directly supports, eligible experimental development, or applied, or basic research

Essentially, eligible research and development (R&D) projects must aim to develop or improve new products or processes, contribute significantly to eligible basic or applied research, or advance scientific knowledge.

What expenses are eligible?

By virtue of the SR&ED tax credit program, companies may request ITCs (Income Tax Credits) for expenses relating to the following (CRA eligible only) such as:

  • Wages
  • Subcontracting
  • Third-party payments
  • Consumed or processed materials
  • Some, but not all overheads ( if traditional method of calculation has been chosen)
  • Expenses related to the contracts of SR&ED performed on your behalf

Certain expenses of salaries of SR&ED performed abroad can be deductible SR&ED when specific conditions are met.

A full list of eligible expenses by province is available online, visit the website for each province in the About the Program section. PREMTEC ensures that your tax credit applications will respect the eligibility criteria for expenses under the various provincial programs.

What activities are ineligible?

Eligible reseach and development activities sometimes include activities that fall outside the parameters of the SR&ED program. The following research and development activities, if undertaken, do not qualify for the program:

  • Social sciences and humanities research
  • Commercial production
  • Style changes
  • Market research or sales promotion
  • Quality control
  • Routine data collection
  • Prospecting, exploring, or drilling for mineral, petroleum, or natural gas production
  • Routine engineering work

For a better understanding of how we can help your company, consult our case studies.