What is the SR&ED Program?

What is SR&ED?

The Scientific Research and Experimental Development (SR&ED) Tax Program is a Canadian federal government initiative designed to encourage businesses to conduct research and development (R&D) in Canada. It is the largest single source of federal support for business-led R&D in the country, providing over $3 billion in tax incentives annually to more than 20,000 claimants. The SR&ED program aims to make R&D more affordable and accessible, thereby fostering innovation, technological advancement, and the overall competitiveness of Canadian businesses. It supports a wide range of industries and business sizes, from small startups to large corporations.

Eligible businesses can benefit from the SR&ED program in two main ways:

1) Income Tax Deduction: Businesses can deduct eligible SR&ED expenditures from their taxable income.

2) Investment Tax Credit (ITC): Businesses may earn ITCs, which can reduce income taxes payable and, in some cases, be refunded in cash.

Canadian-controlled private corporations (CCPCs), other corporations, individuals, trusts, and partnerships can all apply if they conduct eligible R&D work in Canada. Most provinces and territories also offer their own SR&ED-related tax credits, which can be combined with the federal program for additional support.

To qualify, work must involve:

Experimental Development: Advancing technology by resolving scientific or technological uncertainties. OR

Applied Research: Advancing knowledge for a practical purpose. OR

Basic Research: Advancing knowledge for its own sake.

Eligible Support Work: Such as engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research. Routine activities like marketing, sales, routine testing, or commercial production are not eligible.

For a project to qualify, it must meet three main criteria:

1) Scientific or Technological Uncertainty: The work addresses obstacles that cannot be resolved by standard practices in the field.

2) Systematic Investigation: The work follows a systematic process of hypothesis, experimentation, and analysis.

3) Advancement of Knowledge or Technology: The project must aim to advance the technological or scientific baseline.

Eligible Expenditures

• Wages and salaries for staff directly involved in eligible R&D
• Payments to contractors (up to 80% of eligible work)
• Materials consumed or transformed during the R&D process
• Overhead costs directly related to the R&D activity

Funding Amounts
Labour: Up to 69% of eligible salaries and overhead
Contractors: Up to 36% of contractor costs.
Materials: Up to 45% of materials consumed.

CCPCs may receive a refundable ITC at an enhanced rate of 35% on the first $3 million of eligible expenditures, while other corporations, individuals, and trusts receive a non-refundable ITC at 15%5.

Claims are filed with the annual income tax return (T2 for corporations, T1 for individuals, T3 for trusts). The deadline is generally 18 months after the end of the tax year in which the eligible expenses were incurred. Early filing is encouraged to ensure complete and accurate claims and to minimize audit risk.

The SR&ED Tax Program is a cornerstone of Canadian innovation policy, offering substantial tax incentives to businesses that invest in R&D. By reducing the financial risk associated with research and development, it helps Canadian companies innovate, grow, and remain competitive in global markets.

Government of Canada - SR&ED Program