What are the criteria for a business to be eligible for funding under the Scientific Research and Experimental Development (SRED or SR&ED) program?
First things first. SRED is targeted at Canadian-based firms. A Canadian firm has one or more Canadian locations, it is registered with the CRA with a 9-digit business number, sometimes called an HST number, and finally, the company is liable to pay corporate taxes in Canada. SRED is not available to government bodies, non-profits, universities, Crown corporations or municipalities.
The next SRED criterion for eligibility is that you must perform technology work in Canada. From a SRED perspective, it is most lucrative if this work is performed by your own staff (on payroll). A Canadian-controlled private corporation (CCPC) is eligible for the most lucrative R&D credits in the world. For example, including both federal and provincial SRED credits, a CCPC will earn a 65% SRED rebate on qualifying payroll expenditures incurred while doing SRED work in Ontario and a 69% rebate in Nova Scotia. In Alberta, first-time CCPC SRED claimers will earn an incredible 74% SRED credit rebate on qualifying staff R&D work.
Check out the G6 online SRED credits calculator, to see what credits you can earn in your province and for your mix of expenditures: https://www.g6consulting.ca/sred-calculator/
For a CCPC, SRED credits in Canada are refundable. This means you don’t have to earn profits or pay taxes to take full advantage of the SRED program. Credits come to you as cash via a Government of Canada direct deposit into the firm’s business account. SRED credits are not tracked by the government or assigned to specific uses within a company. Smart companies re-invest the SRED money in further R&D expenditures for payroll, materials, and qualifying subcontracts. This reinvestment can cause a flywheel effect where the firm’s future claims become larger. Unlike other grant programs, companies can take advantage of SRED funding annually. SRED funding is embedded in the Income Tax Act. You are not competing with other firms for a fixed pot of funding: as long as you meet the SRED criteria, you will receive your full SRED funding.
The SRED eligibility criteria for the type of technology that might qualify for SRED is very broad. There are four main technology areas where companies can claim SRED. First is Natural and formal sciences. These are the classic hard R&D fields like chemistry, physics, biology, and mathematics. The second technology area is Engineering and technology. Engineering is self-explanatory; technology includes fields like biotechnology and nanotechnology. The third broad technology area is Medical and Health sciences. The final area is Agricultural sciences which include fisheries, forestry, and veterinary science.
Once the above criteria have been satisfied, further criteria for SRED eligibility becomes more specific. Qualifying SRED work must be conducted for the advancement of scientific knowledge or for the purpose of achieving technological advancement. This sounds imposing, but you don’t need scientists or a formal R&D program to qualify for SRED. The government says that over 90% of the funding awarded for SRED is for experimental development work rather than formal R&D. The government recognizes “shop-floor” SRED as a valid category of qualifying work. In this scenario, your regular production staff qualify for SRED as they overcome technology in their normal course of work in regular office or plant (non-laboratory) facilities.
G6 Consulting Inc has over 12 years of experience specializing in the SR&ED program. SR&ED experts such as G6 often work on a contingency basis, with payment only based on a percentage of SRED credits once received. You can contact G6 for a free consultation here. https://www.g6consulting.ca/contact/