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Canada

The SR&ED incentive program encourages Canadian businesses of all sizes and in all sectors to conduct R&D in Canada that can lead to new, improved or technologically advanced products or processes. The federal and provincial tax credits combined range from 15% non-refundable to 54.5% refundable.

An additional 55% of eligible salaries are included in qualifying expenditures to capture overhead related to R&D. This simplified overhead calculation makes the calculation easy and beneficial for companies with high R&D staff costs.

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Small and Medium Businesses (SMB)

Large Companies (LC)

Federal: 35% Tax Credit Provincial: 10% to 30% depending on the province Federal: 15% tax credit Provincial: 3.5% to 30% depending on the province
Benefit Overview

The Tax Credit for SMEs is refundable and can provide up to 54.5% of eligible expenditure. The Federal Tax Credit for LC is non-refundable. The Provincial Tax Credit for LC can be refundable, depending on the province.
Eligible Claim Period

The Canadian Revenue Agency (CRA) allows claims for fiscal years closing up to 18 months in the past.
Historical Background

The programme was founded in 1944, the first in the world, and has existed in its current form since 1986.
Ease of Application

The regime does not require pre-approval (while pre-approval is available for companies requesting it), but audits are expected and detailed. The regime requires the company to fill in both Federal (T661) and Provincial forms, which are relatively comprehensive and complex. The Federal form includes a financial, as well as a technical aspect. The technical part requires the company to present in a specific format (limited to 1,500 words) for each of the claimed projects (up to 20 projects).
Regulating Body Policies

The Federal portion is administrated by the CRA and is responsible for assessing the technical and financial eligibility. At a province level, the Quebec portion is administrated by Revenue Quebec, where the assessment is limited to financial eligibility. In Alberta the portion is administrated by Alberta Treasury Board and Finance. The assessment is limited to financial eligibility. All other provinces are also administrated by CRA.
Eligible Costs

The following are eligible costs for the regime:

  • Salary (Canadian employees only)
  • Canadian subcontractors (amounts capped at 80% of their value)
  • Material consumed or transformed
  • Overhead (an additional benefit, approximated either as 55% of eligible salary base, or company can decide to calculate it in detail)
  • Third Party Payments – Universities and Public Research Centers – which are capped at 80%.
Issues to Consider

  • The regime is extremely mature, and documentation compliance is relatively high
  • Appropriate presentation or positioning of projects is key, otherwise the claim will be denied in audit
  • Finally, the regime is reaching a record level of scrutiny, meaning every new claimant is visited the 1st year and audited in the second year. All other claimants are expected to be audited every 3-4 years.

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