What is the SR&ED?

All types of businesses in Canada are eligible for the SR&ED program; however, incentives vary with the category of business.

Small Canadian Controlled Private Corporations (CCPCs) receive the greatest benefits. (Small CCPCs are those with taxable income less than $500 000.) They can be refunded up to 65% of salary and 20% of overhead costs. Larger CCPCs and others (including public or foreign-controlled corporations) also qualify for SR&ED returns.

Most provinces and territories also have research incentive programs. Benefits from these are cumulative with the federal SR&ED program. When both are taken into account, businesses can recoup more than fifty percent of research costs.

Regardless of the size of corporation, a percentage of investments in salary and equipment are reimbursed. Depending on the type of company and the research performed, rebates are received for:

• salaries including contractor costs
• equipment rentals and purchases
• material costs
• third party payments to approved organizations
• some specific overhead costs

SR&ED can be tough. SR&ED calculations are very challenging due to the sheer number of factors to be considered. The federal and provincial programs each have unique requirements dependent upon the size and type of business. It is easy to make omissions or mistakes and lose out on thousands of dollars. We are fully aware of all federal and provincial provisions and know how to leverage them to help you.

Which Companies Qualify?

Many companies are under the impression that the SR&ED program is for research institutes only. They believe the program was designed exclusively for laboratories or high-tech industries. Fortunately, they are mistaken.

SR&ED program is designed to benefit any industry that makes an attempt at technical improvement. The work qualifies whether it is improving the end product or the process for manufacturing the end product. Thus, SR&ED can take place in an industrial bakery, a shop floor or in a laboratory. Often a company may not even know that their work is considered SR&ED.

Here is a list of industries and types of companies that qualify for the SR&ED:

• Software Engineering
• Biotechnology
• Chemical products
• Cosmetics
• Electrical and electronics
• Food sciences
• Medical devices and instrumentation
• Metalworking
• Paper industry
• Printing industry
• Pharmaceuticals
• Plastics and rubber
• Robotics and manufacturing systems
• Telecommunications

The company sizes vary from a few people working in a small business to large corporations employing thousands. Many activities carried out in the course of manufacturing qualify for SR&ED funding. Typically these activities would involve manufacturing process improvement or creation. For example, engineering an improvement to an existing process would qualify, as would the creation of a brand new process.

Manufacturing industries lose out on much SR&ED funding due to project oversight. Most manufacturing processes are composed of a number of sub-processes. Companies often fail to consider these sub-processes, thereby losing out.

What are the benefits?

Costs incurred in the course of an SR&ED-eligible project can be reimbursed up to the following amounts:

• 65% of employees' salaries
• 40% of contract payments, equipment lease
• 20% of equipment capital

Each province independently matches some portion of the SR&ED incentives granted by the federal government, so rebates differ by province. The table below details typical (not maximum possible) returns received by SR&ED applicants.

Typical (not maximum) rebates by province

*Canadian Controlled Private Corporation

These figures are based on the average business. Depending on the size, type and location of your business, you may be eligible for a higher tax credit. For example, businesses in Quebec can be refunded up to 75% of their research costs. The precise amount depends on a variety of factors including the status of employees, number of contractors, overhead costs and capital costs.

For more information, use our contact us form or call Karim Solanji at 281-558-7100.