What work is eligible for SR&ED?
The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada that will lead to new, improved, or technologically advanced products or processes. Often a project will contain tasks and activities that are research and development eligible. SR&ED eligible refers to tasks and activities that would qualify for the SR&ED program.
The SR&ED program is the largest single source of federal government support for industrial research and development. Claimants can apply for SR&ED investment tax credits for expenditures such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts.
The SR&ED Program is a federal initiative; however, most provinces also have their own SR&ED programs. The basic guidelines of the federal SR&ED program also apply to provincial programs.
Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures, and 20% on any excess amount. (For CCPCs, part of the ITC may be fully refundable in cash.) Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures.
Each year, the CRA receives claims from over 11,000 companies participating in the program. Of these, about 75% are small companies whose claims for R&D expenditures generally range from $20,000 to $2,000,000.
The Canadian SR&ED program aims to advance computer science or information technology. In addition, computer programming that is commensurate with the needs, and directly in support, of an SR&ED project in any field of science or technology is a qualifying SR&ED support activity.
Organizations must be able to identify work that is SR&ED eligible from work that is not. Time tracking software facilitates the task of tracking eligible tasks within a project. For example, a software program would code SR&ED work. This attribute would allow an organization to identify projects, tasks, time entries, expenses and/or charges in order to filter the information when generating reports. This is valuable data for organizations that perform research and development when creating their government tax credits for R&D funding. The data would also provide an audit trail ensuring the information is always acceptable for auditing purposes.
Find out if you qualify for SRED by taking our SR&ED Assessment Tool
http://ctap.ca/sred-qualification-questionnaire/
Find out if you qualify for the Interactive Digital Media Tax Credit by taking our OIDMTC Assessment Tool
http://www.mediafunds.ca/test2b-%20OIDMTC%20Questionnaire%20Assessment%20Tool.html
In order for an activity to be eligible under the SR&ED program, the work must meet the legislated requirements. In particular, the work must fall into one of the following categories: Experimental Development – Activities performed to achieve one or more technological advancements. The advancement can take the form of the creation of new technologies, incremental improvements, new materials or devices, products or processes. Applied Research – Work done to advance scientific knowledge with a specific practical application in view. Basic Research – Work done to advance scientific knowledge without a specific practical application in view. Support Work – Activities that directly supports the needs of experimental development, applied research, and basic research. Only the specific tasks outlined below may fall under this category: • engineering; • design; • operations research; • mathematical analysis; • computer programming; • data collection; • testing; and • psychological research.
