How your business can benefit from the SR&ED tax incentives
What are the SR&ED tax incentives
The Scientific Research and Experimental Development (SR&ED) tax incentives encourage businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada.
Depending on the size and type of business, SR&ED incentives are:
- a deduction against income
- an investment tax credit (ITC) that can be
- non-refundable
- refundable
Whatever eligible SR&ED work you are doing, you can use your pool of deductible SR&ED expenditures to reduce your net income for tax purposes in the current year or deduct them in a future year.
Your ITCs will be at least 15% and can be as much as 35% of your qualified SR&ED expenditures. You can use the ITCs to reduce your income tax payable for the year. If you have excess ITCs in the current year, you may also get a refund. If you have any unused ITCs, you can carry them back 3 years or forward 20 years and apply them against tax payable for other years.
Corporations, individuals, trusts and members of a partnership can use these Government of Canada incentives.
What your business can earn
How much your business can claim depends on the type of business structure and the qualified SR&ED expenditures your business has.
Canadian-controlled private corporations
Generally, most Canadian-controlled private corporations (CCPC) can earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures up to their expenditure limit for the tax year (maximum expenditure limit is $3 million). You can also earn a non-refundable ITC at the basic rate of 15% on an amount over your expenditure limit. However, if a CCPC also meets the definition of a qualifying corporation, 40% of the ITC earned at 15% can be refunded.
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What is the expenditure limit?
The maximum expenditure limit for purposes of the 35% ITC rate is $3 million. However, if the prior year’s taxable capital employed in Canada of the claimant and any associated corporation is more than $10 million, a reduction of the expenditure limit will occur. If the CCPC is associated with other corporations, the resulting expenditure limit calculated is shared, and must be allocated amongst the associated corporations on T2 Schedule 49.
Other corporations
You can claim a non-refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. You can use the ITC to reduce tax payable.
Individuals and trusts
Individuals (proprietorships) and trusts can claim 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 earned in the year.
Members of a partnership
Since a partnership is not a taxpayer, you cannot earn an ITC. In general, the ITC is calculated at the partnership level then allocated to eligible members (individuals, corporations or trusts). If you are considering submitting a partnership claim for SR&ED, read the SR&ED Claims for Partnerships Policy.
Get in touch for more information
If you want more information about SR&ED, you can attend an information seminar, contact our SR&ED Outreach Program or contact us with any questions.
SR&ED information sessions
Attend virtual information seminars on a variety of topics to help businesses gain a deeper understanding of the SR&ED Program. Find out about upcoming SR&ED information sessions and webinars.
SR&ED Outreach Program
The Outreach Program is an initiative that seeks to promote and educate potential claimants about the SR&ED tax credit. Learn more about the SR&ED outreach program.
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