As a business owner in Canada, you are likely already familiar with the government’s Scientific Research and Experimental Development (SR&ED) Program. What you don’t know about it though, might surprise you and hold you back from utilizing its tax benefits.
At its core, the SR&ED is a tax credit program that’s based on your business’ expenditures in the areas of research and development. All types of companies — including partnerships, sole proprietors and corporations — can take advantage of the program.
Because the program offers a tax refund as a credit, a business can enjoy its benefits even if it does not owe any taxes. The SR&ED Program also contains a provision that allows a company to deduct the costs of certain types of equipment that might otherwise need to be capitalized at tax time.
Some of the confusion regarding SR&ED likely lies in the name because it can lead people to believe that only technology businesses can qualify for the benefits. The reality is that generous tax incentives are allowed for many types of development and research that span a range of different activities that go beyond technology.
Computer programming, psychological research, engineering, data collection, mathematical analysis, design, testing, and operations research are just a few of the numerous ways a business can qualify for SR&ED. While a company can perform research that is attempting to advance science, it can also engage in practical applications and still qualify.
Not only is the definition of the research and development activities that could qualify broad, so are the costs that can be included. Items such as overhead, salary, capital expenses, materials, and a myriad of other related expenses could be claimed if they are related to the company’s R&D activities.
What Doesn’t Qualify?
The SR&ED Program also includes a long list of items and activities that are prohibited. Of course, this list cannot provide for every possibility, which is why it’s wise for a company to work with a SR&ED consultant. This professional helps streamline the refund process, ensures that all the necessary documentation is filed the right way the first time and guides a business in determining the items that can be claimed.
Getting a refund could take an extended amount of time.
Fortunately, there are innovative companies that provide loan opportunities based on the projected amount of the SR&ED tax credit. This allows a business to put that money back into its operations so it can scale.