9 Benefits of the Canadian SR&ED Program

The Scientific Research and Experimental Development program is a government-supported tax incentive program designed to motivate Canadian companies conducting R&D in Canada. There are many advantages to applying to the SR&ED program, including covering several costs and expenditures and lowering taxes paid by individuals or groups conducting eligible R&D.

Let’s start with the most obvious benefit of SR&ED, and that’s what you can earn. You receive a 15% non-refundable tax credit at a federal level on qualified expenditures. Some Canadian-controlled private corporations will be eligible for a 35% refundable credit on their first $3 million of qualified expenditures. There are also provincial tax credits, some of which are refundable, available, ranging from 4.5% to 40%, depending on the region.

Any Canadian company conducting R&D in Canada can apply to the SR&ED program. It does not matter your size, what industry sector you work in, or what technology field you work with. It is possible to qualify for a SRED grant at any size. It is available in almost any industry, deducing R&D expenditures from business income.

Here are the nine most important benefits of the Canadian SR&ED program.

1. Encourages Canadian R&D

The SR&ED program has provided billions of dollars of support and investment tax credits to Canadian businesses. The program has helped build these companies and has kept R&D in Canada.

It has also helped strengthening the economy. Plus, it encourages more Canadian-based companies to maintain their operations domestically instead of going to another jurisdiction.

2. SR&ED focuses on knowledge, not commerce

SR&ED helps projects focused on generating or discovering knowledge. It helps Canadian innovation in a big way, and though there are economic consequences of this, SR&ED isn’t a program designed to help commercial prospects.

Much commercial research is excluded, including market research, sales promotions, quality control or routine testing of products, prospecting and exploring for minerals, petroleum, and natural gas, style changes, routine data collection, and any commercial production of new or improved products.

The result of these exclusions is prioritizing technological advancement and scientific knowledge in Canada.

3. Critical source of R&D funding

It takes money to fund R&D. SR&ED is a critical source for more than 20,000 claimants annually. So many technology companies have fueled their innovation hand-in-hand with SR&ED. If your company can qualify for this type of funding, it can help further your R&D, provide a competitive edge, and allow you to retain the best employees for the role.

4. Diverse work is covered under SR&ED

The SR&ED program was developed to cover a wide array of R&D types, from experimental development to applied research and basic research.

Some of the more common support work included under this program is engineering, design, operations research, and mathematical analysis. It also includes computer programming, data collection, testing, and psychological research.

5. SR&ED covers a long list of expenses

SR&ED eligible expenses include wages and salaries of all employees and management directly engaged in eligible R&D work and overhead expenditures, certain contract expenditures performed on behalf of the claimant, and materials. SR&ED is considered one of the world’s more generous R&D tax incentives.

6. Your project does not need to be successful

If you launch a project to discover knowledge or innovation, it qualifies for SR&ED, and if it fails, this failure does not exclude it from benefiting from the Canadian SR&ED program. Success or failure in meeting objectives is not relevant in assessing whether a project and company are eligible for this program.

7. You use SR&ED according to your tax preference

SR&ED is a dual tax incentive, providing you two options on how to maximize the impact of qualifying for the program. A business can choose to deduct SR&ED expenditures in the current year, reducing its tax liability. A business can also carry over those expenditures indefinitely to reduce future tax liability.

Alternatively, a business can opt to receive an investment tax credit, or ITC, which may be refundable and used to reduce taxes payable.

8. You pay less taxes with SR&ED program

Eligible SR&ED work allows you to drastically pay fewer taxes. Your ITC is between 15-35% of all qualified SR&ED expenditures. Add a possible deduction against income or deductions from a prior year. There is a lot of opportunity within this program to maximize your company’s growth while minimizing the taxes you pay.

9. Project does not need to be purely SR&ED

It is not uncommon to see research projects with aspects that qualify under the SR&ED program and some ineligible components or modules.

This sort of project does not mean you cannot qualify for benefits under the SR&ED program. However, one must carefully utilize available documentation to outline what adheres to the SR&ED criteria and is ineligible.