The Scientific Research & Experimental Development (SR&ED) tax credit is Canada’s most popular R&D funding program. Last year, this program provided $4B to 27,000 companies. We know that this program can seem complicated for first-time claimers so we attempted to simplify it into an easy-to-read infographic.
If you have any questions, get in touch with us! We are more than happy to explain the program in more detail for your unique needs.
The US Research & Experimentation Tax Credit or R&D Tax Credit is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The US R&D tax credit has been around since 1981.
However, it has never been permanent – it would periodically expire and be renewed by Congress. Companies wishing to include this in their long-term budgeting plans couldn’t count on the credit being around for certain. Additionally, many companies couldn’t benefit from the credit since they didn’t owe federal income tax or were subject to the alternative minimum tax (AMT).
In 2015, the Congress made the R&D tax credit permanent and also made key changes so that more companies can benefit from the credit. Here is a summary of those changes:
Companies tend to organize themselves around the execution of business projects. The team will execute on a plan to fulfill the technical requirements for a particular business project in order to meet certain commercial objectives of the company. When a company wants to claim SR&ED on a project, they view their work through a commercial viewpoint and consider the business project to be a SR&ED project.
The Canadian Liberal Finance Minister tabled his first federal budget on March 22, 2016. The focus was on economic growth and job creation as promised during the Liberal election campaign. So no big surprises in the budget but there were some surprising consequences to meeting the election promises, mainly the 3x larger budget deficit which ballooned to $29.4 billion dollars for 2017 fiscal year.
The budget focused on economic growth, job creation and a strong middle class, the minister outlined plans to make investments in infrastructure, health care, postsecondary education, innovation, clean energy, and to introduce a Canada Child Benefit program.
When claiming SR&ED it’s important to note that the Income Tax Act (“ITA”) specifies the following exclusions:
1. market research or sales promotion,
2. quality control or routine testing of materials, devices, products or processes,
3. research in the social sciences or the humanities,
4. prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,
5. the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,
6. style changes, or
7. routine data collection;
While some of these seem obvious, number 2, quality control or routine testing is not. The definition begs the questions – what is quality control? What is routine?