The Canadian Scientific Research and Experimental Development (SR&ED) tax credit program awards over $3 billion each year in reimbursements to Canadian businesses to cover costs related to research and development.
The objective of this federal program is to encourage businesses to conduct research and development (R&D) to improve the competitiveness of Canadian businesses in the global marketplace. If your company has developed or improved a new product or process, it is possible that you could qualify for substantial tax credits and/or refunds.
Prior to filing for a SR&ED tax credit, one needs to be aware of the resources required and the SR&ED filing requirements. The Canada Revenue Agency (CRA) allows 18 months from your company’s fiscal year-end to file SR&ED-eligible projects. It is recommended that you consult a qualified SR&ED consultant, such as Northbridge Consultants, prior to your filing deadline to determine which projects are eligible.
SR&ED Filing Requirements
A complete SR&ED claim is comprised of the following:
- A technical narrative detailing the 3 SR&ED criteria involved in each project: 1) Technological Advancement, 2) Technological Uncertainties, and 3) Experimental Development;
- A list of employees who participated in the SR&ED activities; a description of their credentials and the costs allocated to their time spent on SR&ED activities.
- A listing of all materials, subcontract work, capital costs and lease costs associated with each project.
- A statement of work for each contractor involved in a SR&ED project.
- A list of supporting documentation that can be made available to the CRA reviewers.
SR&ED returns can either be refundable (i.e. in the form of a cash return) or non-refundable (i.e. in the form of tax credits), or both. A company's investment tax credit (ITC) refundability level is dependant on both the ownership of your company, and the company’s taxable income in the preceding year.
- Privately-owned Canadian Corporations can earn refundable or non-refundable investment tax credits between 20 – 35% of eligible SR&ED expenditures.
- Foreign-owned Canadian companies and publicly-owned Canadian corporations can earn non-refundable investment tax credits at 20% of eligible SR&ED expenditures.
Steps to File for SR&ED
The claim process can be separated into the following stages which can be streamlined with the support of an SR&ED consultant:
1. Identify the scope of the eligible projects.
2. Develop a technical narrative, in order to summarize the technological advancement, technological uncertainties, and experimental development.
3. Identify all eligible costs associated with the scope of the projects.
4. Forward the costing and technical narratives to an accountant, so that a T661 form can be completed and either filed with or amended to your tax return.
5. Prepare technical and financial documentation to support your claim.
6. Attend a technical review to determine whether the claimed work adheres to the three SR&ED criteria.
7. Attend a financial review, in order to review costing procedures and allocations.
8. Receive a notice of assessment from the CRA, followed by a refund cheque or tax credit.
The CRA's SR&ED Service Standards
The CRA has established service standards to ensure that your claim is processed in a timely manner. Refundable claims (i.e. cash refunds) will generally be reviewed within 120 calendar days from the receipt of a complete claim. Non-refundable claims (i.e. tax credits) will generally be reviewed within 365 calendar days from the receipt of a complete claim.
