What are the tax incentives

The Scientific Research and Experimental Development (SR&ED) program uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. There are two main benefits of the SR&ED tax incentives:

• You can pool your SR&ED expenditures and deduct them against your current-year income or keep them and deduct them in a future year.
• You can earn the SR&ED investment tax credit (ITC) and use it to reduce your income tax payable. In some cases, the Canada Revenue Agency (CRA) can refund the remaining ITC.

Whatever eligible SR&ED work you are doing, your investment tax credit will be at least 15% and can be as much as 35% of your qualified SR&ED expenditures. If you have any unused ITCs, you can carry them back 3 years or forward 20 years and apply them against tax payable for other years.

Corporations, individuals, trusts and members of a partnership can use these Government of Canada incentives.

Canadian-controlled private corporations: Generally, a Canadian-controlled private corporation (CCPC) can earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures of $3 million. You can also earn a non-refundable ITC at the basic rate of 15% on an amount over $3 million. However, if you are a CCPC that also meets the definition of a qualifying corporation, you also earn a refundable ITC at the basic rate of 15% on an amount over $3 million and 40% of the ITC can be refunded.

Other corporations: You can earn a non-refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. You can use the ITC to reduce tax payable.

Individuals and trusts: Individuals (proprietorships) and trusts can earn a refundable ITC at the basic rate of 15% on qualified SR&ED expenditures. You first must apply the ITC against tax payable before the CRA can refund 40% of the unclaimed balance of ITCs earned in the year.

Members of a partnership: Since a partnership is not a taxpayer, you cannot earn an ITC. In general, the ITC is calculated at the partnership level then allocated to eligible members (individuals, corporations or trusts). If you are considering submitting a partnership claim for SR&ED, please read the SR&ED Claims for Partnerships Policy.