Canadian 50's

How Much SRED money can I get?

The SRED money you receive is based on qualified expenses you have incurred in prior fiscal years (one- or two-years’ prior depending on the calendar).  Read this post to see what sort of work might qualify for SR&ED:  https://www.g6consulting.ca/what-is-sred-qualifying-work/

SRED is not a traditional research funding mechanism where you write a proposal that says If given $A, I will carry out X, Y and Z plans.  No SRED is awarded in arrears on work you have already performed.   This mechanism is bad for start-ups who have limited to no operating history and need money yesterday.  It can be great for more established firms who could be sitting on one- or two-years untapped claim which can be accessed immediately.

Ok.  You get SRED money based on qualifying expenses in three buckets.  Payroll, materials, and sub-contracts.  Here’s a couple SRED gotchas to avoid.  Payroll must be earned by Canadians.  Well, technically, to people with SIN numbers which can include non-Canadians.   If you are a business owner only your regular T4 earnings can qualify, no dividends, no bonuses etc.

Subcontracts must go to Canadian companies (check for an HST number) or Canadian individuals (we are back to SIN numbers).

Strangely enough, materials that you use for prototyping or for experimentation where the material ends up as scrap as scrap material can come from China or Timbuktu.  And you can claim the shipping costs to get it delivered to you.

Ok, ok.  Once again, how much SRED money can I get?  There are two methods to get an answer.   I can usually give you a close approximation of your claim after a half hour onsite visit and interview.  Or alternatively, if you are a do-it-yourself type, we can email you a detailed worksheet where you enter qualifying payroll, materials, sub-contracts, any claw backs due to IRAP or contracts, etc.  The spreadsheet is also useful for SRED planning purposes and what-if scenarios.   Here’s a more detailed breakdown of how to calculate SR&ED credits to use with the spreadsheet:  https://www.g6consulting.ca/how-do-you-calculate-the-rd-tax-credit/

Are there limits to how much SRED a company can receive?  There are a couple limits, but they don’t tend to come into play in normal circumstances.

For CCPC’s, earning too much money can reduce the SRED credit rates that you earn.  If you earn over $800K in a fiscal year, this will reduce your credit rate for the following year’s SRED claim to zero.  For fiscal years prior to March 2019, this high business income would also have reduced your federal ITC credit rate from 35 to 15%.  This ITC reduction was eliminated for fiscal year ends after March 2019.  There is a limit to the amount of salary expense owners can claim for themselves.  This amount is 5 times the Yearly Maximum Pensionable Amount, YMPE, used for CPP calculations.  That limit for 2020 for maximum claimable owner salary is $293,500, so it is seldom an issue.