Scientific research and experimental development tax incentive – Overview
The Scientific Research and Experimental Development (SR&ED) Program uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada. These tax incentives come in three forms: an income tax deduction, an investment tax credit (ITC), and, in certain circumstances, a refund.
The SR&ED Program provides more than $3 billion in tax incentives to over 20,000 claimants annually, making it the single largest federal program that supports business R&D in Canada. The program is administered by the Canada Revenue Agency (CRA).
Corporations, individuals, trusts and members of a partnership can use these Government of Canada incentives.
SR&ED success stories
SR&ED tax incentives not only help claimants, it also betters society by encouraging innovation, technological advancements, and the pursuit of scientific and technological knowledge, discoveries and ideas that may lead to Canadian economic growth and competiveness.
See how SR&ED tax incentives are being used to help Canadian corporations to build a better tomorrow at Scientific Research and Experimental Development – Success stories.
How businesses can benefit from SR&ED tax incentives
There are two main benefits of the SR&ED tax incentives:
- You can pool your SR&ED expenditures and deduct them against your current-year income or keep them and deduct them in a future year
- You can earn the SR&ED investment tax credit (ITC) and use it to reduce your income tax payable – In some cases, the CRA can refund the remaining ITC
Whatever eligible SR&ED work you are doing, your ITC will be at least 15% and can be as much as 35% of your qualified SR&ED expenditures. 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.
What businesses can earn
Canadian-controlled private corporations: Generally, a Canadian-controlled private corporation (CCPC) can earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures of $3 million. You can also earn a non-refundable ITC at the basic rate of 15% on an amount over $3 million. However, if you are a CCPC that also meets the definition of a qualifying corporation, you also earn a refundable ITC at the basic rate of 15% on an amount over $3 million, and 40% of the ITC can be refunded.
Other corporations: You can earn 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 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 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.
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