The Scientific Research and Experimental Development (SR&ED or SRED) program is the main research and development incentive program in Canada. Through the SR&ED program, the CRA administers a refundable tax credit to small to medium size businesses (SME’s) in Canada. Unlike a non-refundable tax credit, a refundable tax credit functions like a grant in that if you do not have an outstanding tax balance, your SR&ED money will be refunded to you as a cheque or direct deposit from the CRA. There are no strings attached to the SR&ED money that you receive and no obligation that the money be used to fund further R&D efforts. This is the reason that you will often hear the term SR&ED grant used interchangeably with the term SR&ED tax credit.
Note – The reason that there are no strings attached to the SRED money that you receive is that SR&ED is administered in arrears. In other words, the way that the SR&ED program works is that you first need to undertake an R&D project and incur costs before you apply to the government for a “rebate” on those costs in the form of a SRED grant.
This mini-guide will give you a brief overview of the SR&ED grant, what it is, how it works, and how to apply. For a more comprehensive full SR&ED guide, please review our post here. Or if you would prefer to have our experts handle everything for you and you just want to see your money at the end, you can contact us here; we only get paid when you get paid.
SR&ED stands for Scientific Research and Experimental Development. According to the Canadian income tax act, scientific research and experimental development is defined as “a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis”
SR&ED can fall into one of three categories:
Experimental development is by far the most commonly claimed category of SR&ED, representing over 90% of all claims
The SRED grant refers to the refundable tax credits that are awarded to businesses for conducting SR&ED-qualifying work in Canada.
The technical term of referring to SR&ED as a “tax credit” can be misleading to many prospective claimants because it implies that SRED is merely a “credit” against taxes payable and that you would need to have a sufficient tax balance in order to benefit from SR&ED.
The reality is, that unless you have an outstanding tax balance with the CRA, SR&ED money is refunded to businesses in the form of a cheque or direct deposit from the CRA. Moreover, there are no conditions to how a business must use this money.
It is for these reasons that SR&ED is often referred to as a grant rather than a tax credit.
SRED grants are distributed in arrears based on expenditures incurred while doing qualifying work. In other words, SRED grants are not given because you plan to do the work but instead awarded to offset expenditures already incurred when you did the work.
SR&ED grants can be significant. Small and medium-sized businesses in Canada can receive up to 70% of salary expenditures and 40% of qualifying subcontractor and materials costs incurred while conducting a SR&ED project back in the form of a SR&ED grant.
You can use this SR&ED Calculator to estimate the credits your business may qualify for
There are two ways to apply for a SR&ED grant;
Method 1) With your Corporate Income Tax Return (T2)
The first way to apply for a SR&ED grant is with your T2 corporate income tax return. In this case either you or your SR&ED consultant complete the SR&ED forms; these include the T2 schedule 31, T2 schedule 32 (T661), T2 schedule 60 (T661 part 2), and related provincial forms and then send them to your accountant to integrate with the rest of your corporate income tax return before you file.
Method 2) As an adjustment to your Corporate Income Tax Return (T2)
The second way to a SR&ED grant is as an amendment to your T2 corporate income tax return. In this case either you or your SR&ED consultant complete the SR&ED forms and mail them to the CRA for review. This can be done up to 18 months after your fiscal year end for any given fiscal year.
Any corporation, proprietorship, partnership, or trust can apply for SR&ED; however, only Canadian Controlled Private Corporations will receive refundable tax credits, making SR&ED, in essence, a grant for small and medium-sized enterprises in Canada.
The most common type of expenditures that are claimed for SR&ED are the salary of employees involved in the SR&ED project, and materials and subcontractor expenses related to the SR&ED project.
The size of your SR&ED claim is based on the expenses that you incurred while doing SR&ED work. The government will rebate you for up to 70% of the salary of employees while involved in the SR&ED project and up to 40% of other expenditures incurred during the SR&ED project.
You can claim SR&ED money for expenditures incurred up to 30 months into the past.
The above post has been simplified to provide a concise overview about the SR&ED grant, for a more in-depth view check out our full SR&ED guide here
G6 Consulting can work with you to build your claim, coordinate with your accountant, submit your claim and get you your cheque. No cost until you get paid
Check out our SR&ED overview page to learn more about SR&ED and how to qualify
Contact an Expert for a free no–obligation consultation to see if your business can qualify
Check out our S&ED calculator to get an idea of how big your SR&ED cheque could be