The Scientific Research and Experimental Development (SR&ED) tax incentive program awards up to a 35% tax credit on eligible research and development expenses. In the past, only labour performed within the geographical boundaries of Canada qualified for the SR&ED program. However, as a result of the 2008 Federal Budget, claimants can now earn SR&ED investment tax credits (ITC) on permissible salary or wages for SR&ED work performed outside Canada after February 25, 2008. The SR&ED work performed outside Canada must be directly undertaken by the employees of the claimant, and must form part of the SR&ED performed in Canada by the claimant. Permissible salary or wages incurred by a taxpayer in a tax year will be limited to 10 percent of the total of salary or wages for SR&ED performed in Canada.
This change has a huge impact on multi-national companies whose employees may work in another country. For example, Canadian employees that test a prototype in a US test facility will now be eligible for SR&ED tax credits.
For more information about the SRED program, please go to the CRA website.
