The Scientific Research and Experimental Development (SR&ED) tax incentives are a boon for businesses engaging in research and development within Canada. Eligible entities like corporations, individuals, trusts, and partnerships can claim these incentives, which come in two flavors: a deduction against income, and an investment tax credit. To seize these benefits, one must link their R&D work to claimable expenditures and submit the claim with the annual income tax return.
How Can We Help?
Venturing into the SR&ED domain can be a complex and daunting endeavor when going solo. The intricacies of claim preparation, submission, and follow-through require a seasoned tax expert. This is where we step in. With over 3 decades of experience, we are dedicated to helping you organize finances, create wealth, and transform wealth into a legacy. If you would like to learn how we can help you pay less tax, book your FREE no obligation discovery call today.
What Are SR&ED Tax Incentives?
Engaging in Scientific Research and Experimental Development (SR&ED) could be a golden ticket for businesses to reduce their tax payable through deductions and investment tax credits (ITC).
The deduction entails calculating allowable SR&ED expenditures incurred within the year, which can then be used to reduce net income for the current or future years. On the other hand, ITCs are applied against income tax payable with a basic rate of 15%, although some corporations may claim an enhanced rate of 35%. Some businesses may also earn a refundable ITC.
Moreover, while other government R&D funding and assistance won’t exclude you from SR&ED tax incentives, they may reduce the amount of ITC you can earn. It’s essential to report any such funding in your SR&ED claim. There are also provincial and territorial R&D tax credits available, albeit they’ll reduce the expenditures you can claim for SR&ED.
What work is eligible?
Requirements for SR&ED
To soar in the realm of SR&ED tax incentives, your work must be anchored in Canada and quest for either the advancement of scientific knowledge or a technological breakthrough. This isn’t a mere stroll in a scientific park; it’s a systematic expedition or probe conducted in the fields of science or technology through experiment or analysis. It’s about unearthing new knowledge, tackling uncertainties, and gaining fresh insights even when the goal seems elusive.
Eligible Types of Work
The SR&ED kingdom embraces a variety of quests:
Basic Research: This is the pursuit of scientific knowledge without a practical application in sight. Imagine studying a newly discovered virus to fathom its characteristics.
Applied Research: Here, the aim is to advance scientific knowledge with a practical application on the horizon. For instance, developing a vaccine against a new virus is a noble quest in applied research.
Experimental Development: This endeavor seeks to generate or discover technological knowledge to develop or improve materials, devices, products, or processes.
Support Work: Some supportive endeavors are eligible if they directly bolster basic, applied, or experimental development work. This could span from engineering to psychological research, as long as it’s in service of the SR&ED cause.
Work that is not eligible
However, not all quests are welcomed in the SR&ED realm. Market research, sales promotion, quality control, or routine testing of materials and products, as well as research in social sciences or the humanities, find no favor here.
Preparing your SR&ED Claim
- Get Ready to Claim
- Group Work into SR&ED Projects
- Report Expenditures with Form T661
Utilize form T661 to calculate your SR&ED expenditures.
- Calculate Allowable Expenditures
- Calculate Pool of Deductible Expenditures
- Calculate Qualified Expenditures
- Get an Investment Tax Credit (ITC)
Review Your Claim
A complete claim requires Form T661, Form T2SCH31 or Form T2038(IND) for an ITC claim, and possibly other forms like T1145, T1146, T1174, and T1263.
Before casting your SR&ED claim into the tax incentive sea, it’s extremely important to ensure that its shipshape. Otherwise, your claim can get rejected. This is where we step in. We have over a century combined experience helping small business owners manage their finances and generate success. Book your FREE initial consultation with our experts today to discuss this further.
SR&ED Reporting Deadlines
Mark your calendar! The SR&ED reporting deadline hinges on your tax filing due date, which varies if you’re an individual, a corporation, or a trust. For corporations, it’s a year after your T2 Corporation Income Tax Return is due. Trusts also have a year from their T3 Trust Income Tax and Information Return due date, while individuals with a business have a year after their T1 income Tax and Benefit Return is due.
How to Submit Your Claim
Submitting your claim is a simple voyage with two routes:
Online: If you’re tech-savvy, submit electronically using your tax software.
By Mail: Paper trail enthusiasts can mail their claim to the Tax Services Office.
Post submission, your SR&ED claim typically sails through the processing channels within 60 calendar days, given its complete with the requisite income tax return for the year. If your refundable claim is flagged for review, the journey extends to 180 calendar days from the date of receipt.
Importance of Hiring an Expert
The SR&ED tax incentive landscape is intricate and laden with potential pitfalls that could significantly impact your claim’s success. Hiring a seasoned expert is akin to having a skilled navigator for uncharted waters. We focusspecifically on maximizing your financial benefits to help you have the security to grow your business. Our services include all the important aspects of your finances. Over the last 30 years, we have developed tax strategies designed to help you keep more of your hard-earned money. Book a FREE consultation with our experts today to discuss this further.