What is SR&ED?
The Canada Revenue Agency (CRA) offers tax credit incentives and refunds for companies that perform Research and Development in Canada. The Scientific Research and Experimental Development (SR&ED) program was created in the mid-1980’s to encourage technical development in Canada, and each year it provides an average of over $3 billion to companies located in Canada. In the simplest terms, the SR&ED program caters to companies that are involved in resolving technological issues in the course of developing new or improving existing products, processes, or services. Essentially, if you have developed or created a new process, product, or if you have improved an existing process or product, you are eligible for the SR&ED program.
While many other countries have similar programs, Canada’s SR&ED program is one of the more lucrative of tax-incentive programs for companies performing research and development.
What is SR&ED? The Benefits of SR&ED
Through the SR&ED program, you can receive money back for eligible expenditures incurred – federally, up to 72.7% on labour for small to medium sized businesses. Foreign owned or public companies can receive a 20% tax credit for their eligible expenditures. The funds that you have received through this program can be invested back into your business in the form of new equipment, new hires, expanding your facilities, taking on more challenging projects, paying down debts, and more!
An Example of What You Could Receive for a CCPC* in Ontario**(Some conditions apply) |
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|---|---|---|
| Total | ||
| SR&ED Expenditures | ||
| Labour | $500,000 | |
| Overhead | $325,000 | |
| Materials | $125,000 | |
| Subcontracting | $50,000 | |
| Total Qualified Expenditures | $1,000,000 | |
| SR&ED Refunds | ||
| Ontario Research & Development Tax Credit (ORDTC) | 4.5% | $45,000 |
| Ontario Income Tax Credit | 10% | $95,500 |
| Federal Income Tax Credit | 35% | $300,825 |
| Total SR&ED Benefit to You | 44.1% | $441,325 |
| * CCPC – Canadian Controlled Private Corporation ** The provincial tax credits and rates of return vary from province to province. Read more about provincial tax credits |
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