Jul 19, 2017
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“Early identification and good documentation are critical.”
The Scientific Research and Experimental Development (SR&ED) tax credit program has existed for close to 25 years, yet it is still very much under-used by many corporations in Canada. One reason for this is the misperception by the general public about what this program is intended to encourage.
It is often thought that the SR&ED program is really only an SR program that applies to breakthroughs in science. Broadly speaking, basic and applied research without any commercial goal may qualify under the SR&ED program.
Don’t forget about the ED part of the definition. Experimental development is the undertaking to resolve technological obstacles to overcome a scientific risk where there is a real likelihood of failure without any economic gain. ED can arise in the context of development or improvement of new or existing products and processes and it often occurs on the shop floor. Identifying ED “after the fact” reduces the chances of a successful claim for many reasons. Early identification and good documentation are critical.
The benefits of the SR&ED tax credit can be significant. For a Canadian-controlled private corporation (CCPC), a 35% federal refundable tax credit can be received on the first $3 million of eligible SR&ED expenditures. Depending on the provincial SR&ED tax incentives, the SR&ED tax benefits can help CCPCs recover up to 75% of eligible expenditures.
For a taxpayer that is not a CCPC (including an individual), the federal benefit is a 20% non-refundable tax credit and there may be provincial incentives that may or may not be refundable.
The SR&ED rules are complex, and obtaining these generous benefits requires an understanding of the tax and the scientific rules, as well as the practical requirements for documenting the work being done.
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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.