How do you calculate your SR&ED expenditures and investment tax credit? - Video 3  

Transcript

Welcome to video three of this series.

In video two I spoke about what type of work qualifies for the Scientific Research and Experimental Development investment tax credit.

I will now talk about how much investment tax credit you can earn, and what kinds of expenditures can be claimed for SR&ED.

First, let's look at how much investment tax credit you can earn.

Whatever eligible research and development work you're doing, your investment tax credit will be at least 15% and can be as much as 35% of your qualified SR&ED expenditures.

So who can get 35%?

Generally, Canadian-controlled private corporations can earn an investment tax credit of 35% on their qualified expenditures up to a maximum of $3 million in expenditures.

35% - that's impressive!

The investment tax can be refundable, or be applied against taxes you owe. It's a win-win either way.

With that in mind, let's see what expenditures qualify.

Salaries or wages

Contracts

Third-party payments

Materials

Overhead and other expenditures

These are the types of expenditures you can claim, as long as they are directly related to your SR&ED work.

When you file your SR&ED claim you'll need to provide an amount for each type of expenditure.

However, you'll need to calculate your ‘overhead and other expenditures' amount using either the traditional method or the proxy method.

With the traditional method, you have to track each of your overhead and other expenditures throughout the tax year.

With the proxy method, you can calculate a substitute amount for your overhead and other expenditures.

This substitute amount is called the prescribed proxy amount. It's 55% of salaries or wages for employees who are directly engaged in your SR&ED work.

The proxy method is simpler because you don't have to itemize each of your overhead and other expenditures.

Now you know what expenditures you can claim. In the next video we'll look at how to file your SR&ED claim and how to claim your investment tax credit.

Whatever research and development work you may be doing, you'll want to learn more about the SR&ED tax incentive program. There could be a tax credit for you!

To find out more about the SR&ED program check out the policies, services, and tools at www.cra.gc.ca/sred.

You can also attend free SR&ED information seminars.

Thanks for watching!