SR & ED Claim
Scientific Research and Experimental Development Tax Incentive Program
The government of Canada and a number of provincial governments actively encourage the pursuit of scientific research and experimental development (“SR&ED”) activities in Canada in order to advance scientific knowledge and technology.
The tax benefits include allowing businesses operating in Canada to deduct current and capital expenditures related to SR&ED activities conducted in Canada, regardless of the amount of expenditures incurred in previous years. Such businesses can also receive tax credits for qualified SR&ED expenditures.
SR&ED expenditures made outside Canada may be deducted in the year in which they are incurred.
Current SR&ED expenditures made in Canada may be deducted in the year when they are incurred or carried forward indefinitely.
Tax credits are earned on qualified expenditures. Some of these credits are refundable and others are not. Non-refundable tax credits may be applied against income tax payable. They may be refunded for some Canadian-controlled private corporations (“CCPCs”) if certain income and taxable capital criteria are met. There is no limit to the tax credits that can be earned. Tax credits are calculated based on a percentage of qualified expenditures.
The Department of Finance Canada writes the legislation that governs SR&ED, and the Canada Revenue Agency (“CRA”) administers the SR&ED tax credit program.
SR&ED Advisory services are available at M M CPA Professional Corporation. We have helped many entrepreneurs in dealing with preparing SR&ED applications with many successful cases. You may contact for a free initial consultation for further information.
Individuals who run a business and conduct SR&ED can claim SR&ED investment tax credits for expenditures incurred for employees, subcontractors, material, leasing costs, and capital expenditures. The proxy amount will be available for salaries paid to employees if the proxy method is chosen. The claim must be submitted with the individual's tax return. Individuals are entitled to a 20% refundable federal tax credit.
Supporting documentation needed
Appendix 2 of Guide T4088 explains w
hich documents and other evidence you need to support your scientific research and experimental development claim.
If your claim is subject to review, you will be asked during the review process to provide this evidence. Generally, the best evidence is that which was generated as the work was being carried out. If you do not have supporting evidence, your claim will likely be disallowed.
Examples of technical and financial supporting evidence are:
- Project planning documents
- Documents on design of experiments
- Experimentation plan
- Design documents and technical drawings
- Project records, laboratory notebooks
- Design, system architecture and source code (software development)
- Records of trial runs
- Project progress reports
- Minutes of project meetings
- Test protocols, data, results, analysis and conclusions
- Final project report or professional publication
- Photographs, videos
- Prototypes, samples
- Scrap, scrap records
- Contracts, lease agreements
- Records of resources allocated to the project, time sheets, activity records, payroll records
- Purchase invoices and proof of payment
- Accounting records.
This list is not comprehensive. You should keep any documentation that you feel will support your claim.
Filing your claim
To apply for tax incentives, you must file the applicable prescribed forms with your income tax return by your reporting deadline. For corporations, the reporting deadline is 18 months from the end of the tax year in which you incurred the expenditures. Individuals have 17.5 months. If you do not report an expenditure and provide project information on the prescribed forms by your reporting deadline, you will not be able to include the amounts in your pool of deductible expenditures to use to reduce your income. You will not be able to earn an investment tax credit on these expenditures.