Most business owners will welcome a 35% tax credit for expenses such as wages, materials, machinery, equipment and overheads.

Your business may qualify.

The Scientific Research and Experimental Development (SR&ED or SRED) program is a federal tax incentive program designed to encourage Canadian businesses to conduct research and development in Canada that will lead to new, improved, or technologically-advanced products or processes.

It provides support in the form of input tax credits and/or refunds to qualifying corporations, partnerships or individuals. Under SRED, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $3 million of qualified expenditures and 20% on any excess amount.

Defining SRED
The definition of “scientific research and experimental development” (as it appears in the Income Tax Act) can be summarized as:

• “…systematic investigation or search carried out in a field of science or technology by means of experiment or analysis . . . to advance scientific knowledge or to achieve technological advancement.”

Expenditures you can claim
The type of expenditure you may be able to claim under SRED include salaries and wages, materials, lease costs for equipment, third-party payments and capital expenditures.

According to CRA, the work must qualify as:

• Experimental development. Work done to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes.
• Applied research. Work done to advance scientific knowledge with a specific practical application.
• Basic research. Is work done to advance scientific knowledge without a specific practical application.

Expenditures you can’t claim

• Market research or sales promotion.
• Quality control or routine testing of materials, devices, products or processes.
• Research in social sciences or the humanities.
• Commercial production of a new or improved material, device or product.
• Routine data collection.

SRED is the largest single source of federal government support for business research and development. The Canada Revenue Agency website states the SRED program provides over $4 billion in investment tax credits to over 18,000 claimants each year – of those, about 75% are small businesses.

To find out more, contact the Canada Revenue Agency directly.

Is your business eligible for SRED credits? Or, have you discovered any other helpful government programs like it? Please share your experiences below.

By Roger Pierce