Last week, NorthBridge held a webinar to cover key topics and important insights on the Scientific Research & Experimental Development (SR&ED) program. SR&ED, administered by the CRA, offers investment tax credits (ITCs) to support innovation, R&D, and capacity building in Canadian businesses. Keep reading to learn more about the program and how it can benefit your business.
What is indirect support?
Throughout the session, we discussed how indirect support, which includes tax credits like SR&ED, differs from direct support (grants and loans). With direct funding, companies must apply in advance to programs which typically have funding caps limited to specific sector. In contrast, the cross-sectoral SR&ED program has no overall funding limits, and applications are submitted after costs have already been incurred. While this can be an advantage, in that funding is generally easier to access as long as your company meets the criteria, this also means that you must cover ongoing costs out of pocket, often well in advance of receiving funding.
What do I need to know about the application process?
SR&ED applications consist of three elements: a technical paper which confirms eligibility; expenditures associated with R&D; and business administration. The final application deadline is 18 months following the relevant fiscal yearend, although many businesses choose to file six months following the yearend. For a December 2023 yearend, the hard deadline would be end of June 2025, with most businesses filing in June 2024. All SR&ED expenditures incurred within a fiscal year must be paid within 180 days of a yearend. For a December 2023 yearend, this means expenses must be paid by March 2024. Keeping in mind that tax credits are considered a form of revenue, tax planning in advance can help businesses estimate their claims and keep track of important information.
How much can I receive?
The majority of Canadian controlled private corporations (CCPCs) are eligible for an enhanced refundable 35% rate, for expenditures that do not exceed $3 million. For expenditures exceeding $3 million, as well as for foreign-owned companies, public businesses, proprietorships, and partnerships, a basic non-refundable rate of 15% is available. In addition to these credits, provincial and territorial credits are also available, with rates as follows:
| Province | Rate | Refundable? | Filing Deadline |
| Alberta | 8-20% | Yes | 15 months after filing due date |
| British Columbia | 10% | Up to $3M | 18 months after tax yearend |
| Manitoba | 15% | Up to 7.5% | 1 year after filing due date |
| New Brunswick | 15% | Yes | N/A |
| Newfoundland and Labrador | 15% | Yes | 12 months after filing due date |
| Nova Scotia | 15% | Yes | 18 months after tax yearend |
| Ontario | 3.5-20% | Depends on credit | N/A |
| Quebec | 14-30% | Yes | |
| Saskatchewan | 10% | For CCPCs up to $1M | N/A |
| Yukon | 15% | Yes | 12 months after filing due date |
What expenses can I claim?
Only specific costs can be claimed, with wages and salaries typically comprising a large portion of claimed costs. Qualifying expenditures include:
- Salaries and wages for employees directly involved in R&D.
- Overhead costs related to the project.
- Materials used directly in R&D.
- Subcontracts for Canadian SR&ED services.
Currently, SR&ED eligibility is determined through two criteria: why a project is undertaken, and how the project is carried out. Work must be completed for the purpose of advancing scientific knowledge or technology through systematic investigation. Included under this definition is experimental development, basic research, applied research, as well as support work that directly facilitates R&D activities. Project types usually fall under a few categories, including:
- Product development: Products with new materials, new specifications, for use in new applications, or with new mechanisms.
- Process improvements: New methods for improved processing, expanding capabilities, working with new materials, or different properties.
- In-house equipment development: Upgrading, modifying, or integrating new systems.
All projects must correspond to a technology code. Projects which fall outside the scope of these codes are not eligible.
How can I prepare to file?
Once you have determined what rates your company is eligible for, and which projects you can claim, you can begin preparing for your filing. Accessing SR&ED is an ongoing process that should not be limited to filing the application. Developing systems for tracking SR&ED activities is key to ensuring you can maximize your claims while avoiding audits. To track your SR&ED activities, keep a list of SR&ED-eligible projects with relevant milestones. All activities related to the project should be tracked, with relevant dates, documentation, and notes included. Working on your documentation throughout the year alongside key employees will ensure a smooth application process and allows for more accurate estimations of the credits that you will receive.
Getting started with SR&ED can be complex and time-consuming. NorthBridge offers support to identify projects, consolidate documentation, assist with applications, and prepare for audits. To learn more about SR&ED and how you can increase your funding by combining SR&ED with other programs, contact one of our SR&ED specialists today. Click here to read about our other SR&ED webinar.
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