The Canadian SR&ED program offers significant funding for Scientific Research & Experimental Development activities carried out in the course of your business. For small Canadian-controlled private corporations (CCPCs) that meet the eligibility criteria, the SR&ED Tax Credit Program acts like a government grant—offering cash reimbursements of up to $1,000,00 for eligible expenditures on an annual basis at rates ranging between 28% to 64%, depending on the province in which you file a claim. Large, foreign-controlled or public companies, as well as individuals and partnerships, that are not eligible for the federal refundable tax credit can qualify for a 15% non-refundable federal SR&ED tax credit.
The SR&ED program is available to any business operating and carrying out R&D in Canada. Certain expenditures for SR&ED performed outside Canada are also permitted.
Any business that is involved in basic or applied research, or in advancing technology in order to improve or develop new materials, devices, products or processes may be eligible under the SR&ED program.
The businesses that are eligible under the SR&ED program fall into three groups:
1. Canadian-controlled private corporations;
2. Other corporations; and
3. Proprietorships (individuals), partnerships and trusts.
1. Canadian-controlled private corporations (CCPCs)
If you are a CCPC, you may receive a refundable investment tax credit (ITC) on your qualified SR&ED expenditures. You must first apply these ITCs against taxes payable in the year of the claim. The balance may be refunded.
The rate of refundability is based on your taxable income and taxable capital in the previous year and an expenditure limit.
2. Other corporations
For other corporations, the ITC is 20% of qualified current and capital SR&ED expenditures. The ITC may be applied to taxes payable and is not refundable.
3. Proprietorships, partnerships and trusts
For proprietorships, partnerships and trusts, the ITC rate is 20% of qualified current and capital SR&ED expenditures. After applying the ITCs against taxes payable, you may receive a cash refund on 40% of the balance of the ITCs earned in the tax year.