Research and development hold the center stage among all the economic programs rolled out by the Canadian government. They provide incentives to companies and businesses cutting across the sectors through the SR&ED program, commonly referred to as Canada SRED. Although this is a generous incentive program, qualifying for it and filing claims requires professional guidance from SR&ED consultants to navigate the complex and lengthy process that has left companies with mixed experiences.
The consultant helps in preparing SR&ED cases besides guiding the company right from the beginning to the end to ensure a positive outcome in the form of a tax refund, tax credit, or grant. The consultants usually belong to a company comprising engineers and scientists who are highly experienced in filing SR&ED claims across a wide range of industries like Manufacturing, Farms, Foods, Start-up, Pharma, Research, including doctors Biotech.
Providing a level playing field
In its endeavor to encourage research and development, the Canadian Revenue Agency (CRA) does not leave any scope for discrimination, as evident from its approach in providing a level playing field for all companies and businesses of all sizes based and incorporated in Canada. Any company belonging to any industry can qualify for the SR&ED program as long as they demonstrate an attempt for technological advancement or improvement. Although there are some misconceptions about the scheme being more beneficial for bigger corporations, smaller companies’ incentives are larger than the bigger corporation. In line with its goal for encouraging research and development, the CRA has provided incentives to companies even if their experimentation efforts failed. The attitude and approach towards research and development are more critical because there is no certainty of results in all cases.
What qualifies for SR&ED?
The kind of activities your company undertakes determines its eligibility for the SR&ED program.
- New designs, innovations, contemporary formulations, methods to speed up product delivery at a cheaper cost, and improve the quality qualify for the SR&ED program.
- Activities related to efficiency enhancement and new product development together with risk mitigation and cutting down on unproductive time and material while ironing out uncertainties make a good case for filing an SR&ED claim.
- Addressing quality issues, material changes, and eliminating inconsistent products while addressing issues in reducing labor and resources while manufacturing the product also comes within the SR&ED program’s ambit.
- New algorithms, integration issues, and tools, and software structure are also covered.
Which type of companies can qualify?
Private companies under Canadian ownership are eligible to earn up to 68% refundable tax credit on costs that qualify under the SR&ED program.
Proprietorship firms and trusts can earn up to 30% tax credit based on similar cost qualifications.
Although a partnership firm does not provide quality for the SR&ED program, its partners can claim SR&ED tax credits. The process involves claiming SR&ED benefit at the partnership level and subsequently allocating it to individual partners who can file a claim with their tax returns.
Private or public companies not under Canadian ownership can earn a tax credit of 30% (cost-based), reducing payable taxes.