Scientific Research and Experimental Development (SR&ED) Tax Incentives

Neufeld Legal PC: Chris@NeufeldLegal.com - 403-400-4092 / 905-616-8864

The Scientific Research and Experimental Development (SR&ED) Tax Incentives program is the largest single source of federal government support for business research and development in Canada. It is designed to encourage businesses of all sizes and sectors to conduct eligible research and development work in Canada.

The SR&ED Tax Incentives program offers two main types of incentives for eligible work and expenditures:

  • A Deduction Against Income: You can deduct SR&ED expenditures against your income to reduce your net income for tax purposes.

  • An Investment Tax Credit (ITC): You can earn a tax credit on qualified SR&ED expenditures. This credit can be used to:

    • Reduce federal income tax payable.

    • Be paid out as a cash refund (for certain claimants, primarily Canadian-Controlled Private Corporations (CCPCs).

    • Be carried forward to reduce taxes in future years.

SR&ED Tax Credit Rates (Federal):

  • CCPCs on the first $3 million in qualified expenditures: credit rate of 35%, which is fully refundable.

  • CCPCs on expenditures over $3 million: credit rate of 15%, which is partially refundable (40%) under certain conditions.

  • Other Corporations, Individuals, Trusts, and Partnerships: credit rate of 15%, which is generally non-refundable (except for some individuals/trusts).

Many provinces and territories also offer their own SR&ED tax credits, which can be claimed in addition to the federal incentives, making the overall program highly generous globally.

For work to be eligible, it must be performed in Canada and must meet two main criteria:

1. Scientific or Technological Advancement

The work must be conducted for the purpose of achieving a scientific or technological advancement. This means creating new scientific knowledge or new or improved technological knowledge (know-how).

2. Systematic Investigation or SearchThe work must be a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. This is typically done by:

  • Formulating a hypothesis.

  • Testing the hypothesis through experiment or analysis.

  • Developing logical conclusions based on the results.

SR&ED encompasses three categories:

  • Basic Research: Work for the advancement of scientific knowledge without a specific practical application in view.

  • Applied Research: Work for the advancement of scientific knowledge with a specific practical application in view.

  • Experimental Development: Work to achieve technological advancement to create new, or improve existing, materials, devices, products, or processes (including incremental improvements).

Eligible Support Work (must directly support and be commensurate with the core SR&ED): Engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.

Activities that are considered routine work or non-scientific/technological in nature are generally excluded, such as:

  • Market research or sales promotion.

  • Quality control or routine testing.

  • Research in the social sciences or humanities.

  • Commercial production of a new or improved product/process.

For knowledgeable and experienced tax law representation for corporate tax planning strategies, as your business enterprise strives to optimize the financial advantages of legal tax structuring, contact tax lawyer Christopher R. Neufeld at Chris@NeufeldLegal.com or call 403-400-4092 (Calgary, Alberta) / 905-616-8864 (Toronto, Ontario).

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