Jonathan Ruben, Toronto Chartered Accountant - Certified Financial Planner &  Public Accountant (U.S)

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research & development tax credits

Some key SR&ED facts:

  • $4 billion paid annually in SR&ED incentives
  • 18,000 claimants annually
  • 75% of claims are from small and medium businesses
Research & Development Tax Credit Presentation.pdf

What is SR&ED and how does it apply to my business?

SR&ED stands for scientific research and experimental development. As an incentive to spur the growth of start-up companies and innovations, both the federal and provincial governments have implemented programs that provide a way for companies to claim back a portion of their allowable SR&ED expenditures. These programs result in savings to your company through investment tax credits (ITCs) and/or current deductions from income. Like many of our clients, your company may even be eligible to receive a cash refund on a portion of its SR&ED expenditures.

How do I know if I qualify for SR&ED benefits?

Every situation varies and a thorough assessment by our staff would be necessary. However, as a general rule-of-thumb, qualifying activities must meet the Canada Revenue Agency's Three-legged Stool Test.

The first leg of this test is that an activity must seek an advancement of technology. The advancement can either be forward and on the leading edge, or it may be a sideways advance - focusing on a solution to a problem which has persisted despite several standard or ad hoc fixes.

The next leg of the test is that the activity must possess an element of technical uncertainty or risk. If the project can be achieved in time solely by the expenditure of money, then it will likely not qualify.

The final leg of the test states that the activity should be performed in accordance with the scientific method. The scientific method involves formulating a hypothesis, testing and modifying it using systematic observation, measurement and experimentation. You will need to thoroughly document the activity in order to provide support for your claim.

How can I claim my SR&ED benefits?

After you incur expenses on qualifying SR&ED activities, you will need to file an SR&ED claim within 18 months after your fiscal year-end. These claims must contain all necessary information and are often filed at the same time as your company's annual tax returns; the SR&ED claim will optimally be filed within 6 months of year-end. Keep in mind that your SR&ED will be lost forever if you file more than 18 months after year-end!

Carefully tracking your SR&ED activities and expenditures is essential in preparing a claim. Canada Revenue Agency (CRA) requires financial information to be broken down by project and cost category. In addition, activities must be divided into separate projects, and each project requires a separate technical report.

Certain forms are required by CRA when filing your claim:

  • Technical summaries
  • Form T661
  • Schedule 31
  • Schedule 32

When do I receive my SR&ED benefits?

Canada Revenue Agency is committed to delivering settlement notices to 90% of claimants within 120 days of accepting the claim.
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