Demystifying SR&ED

The SR&ED program is run by the CRA to encourage and support Canadian businesses taking part in scientific and technological research and development (R&D).

Businesses that engage in eligible R&D activity can claim either a direct cash payout or tax credits. The Canadian government’s program is incredibly generous, supporting businesses like yours to the tune of $3-4billion each year. Three quarters of the beneficiaries of SR&ED are small businesses.

But how do you access this benefit? Read on to learn more.

What exactly is SR&ED

SR&ED stands for ‘scientific research and experimental development’.

The Canadian government’s SR&ED program is a powerful tool for Canadian businesses engaged in innovation. It offers significant financial incentives that support research and development. By providing tax credits or cash refunds, it helps businesses offset R&D expenses and reinvest in future innovation.

At its core, SR&ED supports businesses that pursue technological advancements and seek to clarify scientific uncertainties.

Key term: technological advancement is the generation or discovery of knowledge that advances the understanding of the practical application of scientific knowledge and principles.

Key term: scientific uncertainty describes the uncertainty due to an insufficiency of scientific knowledge around whether a given result or objective can be achieved. It also includes uncertainty about how to achieve the result.

Work that is eligible for SR&ED

For any work to qualify for the SR&ED program, it must involve technological advancement, and scientific uncertainty. The work needs to involve basic research, applied research, or experimental development.

Basic research consists of work done to progress scientific knowledge with no particular reason.

Applied research is work that progresses scientific knowledge with a specific purpose.

Experimental development aims to attain technological advancement by improving an existing product, procedure, system, or practice or introducing a new one.

To qualify for the Canadian SR&ED program, your work must aim to achieve a technological advancement by resolving a technological uncertainty through systematic investigation.

The work needs to be a systematic investigation that follows a structured approach to problem solving. It needs to involve scientific or technological principles. And you will need to keep detailed records of your activities.

Some examples of activities that are eligible for SR&ED are:

engineering
design
operations research
mathematical analysis
computer programming
data collection
testing or psychological research

There are some activities which are ineligible for SR&ED. Market research, sales promotion and style changes are not included in the SR&ED program, and nor is any research in the social sciences or humanities. Also ineligible for SR&ED are routine quality control and data collection activities. Prospecting for minerals and fossil fuels is not eligible, and nor is the commercial production of a new product.

How will my company benefit from a SR&ED application?

The SR&ED program’s refund on your company’s tax bill offsets R&D costs and can be invested in further innovation, to make your business more competitive. We have an SR&ED calculator that can give an estimate of the benefits available to your organization.

Companies that file an SR&ED claim can get a refund of up to 35%+ of eligible expenses provided they do not exceed $300,000,000 and up to 15%-20% if expenditure is more than $300,000,000. This rate varies from province to province and also depends on the type of business.

There are other rules for CCPCs, and for partnerships, trusts and proprietorships.

Getting started with SR&ED

Information about the SR&ED program is freely available from the Canada Revenue Agency. But you can give yourself a head start by seeking professional advice from a Canadian SR&ED consultant as the application process is much easier with support and guidance.

Navigating the SR&ED program can seem complex, but with guidance from Canadian SRED, you can unlock valuable funding for your R&D efforts. Use our SR&ED calculator to see how much you can save on your R&D activities.