There’s a long history of tax incentives, credits, and other reward programs in Canada that are designed for people to enter the workforce or carry out research and development in certain sectors.
The Workers Income Tax Benefit, for example, was introduced to aid those with relatively low incomes and give more people a reason to join the workforce, while the Industrial Research and Development Incentives Act of 1967 provided cash grants to companies involved in scientific research.
The Scientific Research and Experimental Development program is one of the more recent additions to Canada’s ever-expanding catalog of tax incentives, and this guide will help you learn all about it, covering what it is, why it exists, and what it might be able to offer your business.
An Introduction to the Program
Let’s begin with an introduction to what the Scientific Research and Experimental Development (SR&ED) program actually is. In simple terms, this is a tax incentive program, created by the Canadian government and introduced to provide tax incentives and rewards to Canadian companies of all sizes for carrying out scientific research and experimental development.
Annually, records show that around $3 billion gets paid out via the SR&ED program, with thousands of claimant companies across the nation benefiting from tax credits, deductions, and even cash refunds in certain cases. Companies of many sizes and across lots of different industries benefit from the program too, so it isn’t simply limited to just one or two areas of the professional sector.
Furthering Research and Development Across Canada
So why does the SR&ED program exist in the first place and what is the main aim behind this program? Well, the primary objective of the program is to encourage companies, scientists, and researchers of all kinds to carry out their research and development activities in Canada itself, rather than over the border in the US or elsewhere across the world.
The idea behind this is that, if companies have a tangible financial reason to conduct their research on Canadian soil, they’ll be more likely to do so. In turn, this can help to strengthen the entire research and development sector for the whole of Canada, potentially allowing new breakthroughs, innovations, and products to be created and patented in Canada, rather than other parts of the world.
Tax Incentives in Three Forms
Businesses that are eligible and meet all of the necessary requirements for the SR&ED program may expect to receive their benefits in one or more of three different forms: a tax credit, a tax deduction, or a cash refund. The amount and type of reward your business receives depend on a range of different factors, and it can be wise to work with SR&ED specialists to maximize your company’s benefits.
In order to take part in the SR&ED program and benefit from all that it has to offer, businesses need to make sure that they meet the necessary requirements. Some of the requirements are clear and easy to understand; for example, your company must carry out its research and development in Canada in order to qualify.
Other requirements can be a little more confusing and vague. For instance, your research and development cannot be in certain forms, such as social science research, product testing, marketing research, and so on, but must instead fall into one of the three following categories in order to make you eligible for the SR&ED program tax credits and other bonuses:
- Basic Research – Basic research is essential for the sake of education. This kind of research will not necessarily result in the development of some new innovative product or service, but it can help to further understanding and knowledge on a certain topic.
- Applied Research – Applied research, as the name implies, is research that is designed to offer some sort of value in terms of a real-world use or application. For instance, research that leads to the development of a new form of technology.
- Experimental Development – Experimental development is essentially the next step up from applied research. This is when existing or gained knowledge from previous research is put into action to create or enhance technology in some way.
The SR&ED program is certainly an option to consider and learn more about for any business based in Canada that is carrying out or has plans to carry out research and development of some form. We hope that this guide has helped you learn more about what this program is and what sorts of benefits it can offer to Canadian companies.