the R&D tax credit programs

Browse through the key elements of the SR&ED and Quebec's E-business programs

FREQUENTLY ASKED QUESTIONS

General FAQs

What is the Scientific Research & Experimental Development (SR&ED) program?

Scientific Research & Experimental Development (SR&ED, or commonly pronounced as ‘SHRED’) is a Canadian tax incentive program administered by the CRA. The federal, provincial and territorial governments encourage businesses of all sizes and in all sectors to conduct R&D – whether in basic research, applied research, or experimental development – which is seen to improve a firm’s competitiveness and growth potential, as well as overall economic conditions.

How much money can I expect?

Canadian-controlled private corporations (CCPC) can receive 35% in fully refundable credits (on expenditures up to $3M per year) from the Government of Canada. Non-CCPC can receive 15%. Provinces and territories offer SR&ED tax credits ranging from 4.5% to 37.5%. Some provincial jurisdictions offer refundable credits.

Note: The resulting credit percentages are actually greater than those stated (>(35% + 4.5-37.5%)) because the federal government tops up its contribution slightly based on each provincial contribution.

How much is it going to cost me?

There are no fees associated with the SR&ED program. Systems Canada offers different packages to suit different needs, and we are prepared to limit our involvement to keep your consultation costs to a minimum.

You will find that our reasonable fees are worthwhile, not only because we increase the odds of a successful claim and a virtually painless scientific audit experience, but because we minimize the demands on your staff so they can work on the firm’s core activities.

Most SR&ED consulting firms work on contingency, with rates ranging from 10% to 45% of the tax credits. However, there are also clear advantages to working with consultants on a fixed fee arrangement or an hourly rate. Systems Canada always works with our clients to seek the best solution for their needs.

What are the qualification criteria?

SR&ED has three main eligibility criteria:

  • Technological Advancement. The experimental development activity must seek to improve understanding of the core technologies. In a practical business setting, eligibility requires that new or improved products or processes involving an increase in the level of technology from the start of the project.
  • Technological Uncertainty. Technological challenges or problems with no known solutions.
  • Technical Content. This is about systematic investigation, documentation, and credentials. An investigation is systematic if it progresses from identification to conclusion through a clearly set out and methodical process. The process must be documented, and the professionals must have appropriate credentials.
I don’t think our firm does R&D. Can we still be eligible?

You might be surprised, as companies with a wide range of technical abilities are eligible for SR&ED credits. The program considers your company’s context and what information is publicly available (Google searches, white papers, etc.) SR&ED work begins when you are unable to find a solution to your technical problem in the public domain. For example, your firm may be eligible due to work to overcome constraints arising from your legacy (older and possibly out-dated) equipment.

What types of projects qualify?

Projects may qualify for credits whenever the work to advance the technological baseline cannot be a guaranteed success, even for marginal improvements.

To qualify, the work must attempt to resolve a technological challenge where the solution was not available in the public domain (from a Google search, white paper, etc.) and qualified personnel must follow a systematic approach to resolving the issue:

  • experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;
  • applied research to advance scientific knowledge with a specific practical application in view;
  • basic research to advance scientific knowledge without a specific practical application in view; and
  • support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research.
What kinds of expenditures qualify?

The Government of Canada SR&ED program considers the following expenditures:

  • Salaries (100%) for those directly involved in eligible work
  • Subcontractor costs (80%) directly associated to eligible work
  • (Non-depreciable) material costs (100%) required to achieve your technological advancement
  • Overhead costs (55%) are calculated based on salaries

*NB. The accepted percentages of expenditures may differ among the provinces.

What happens if I get audited?

The CRA employs technical and financial staff to assesses the qualifications of SR&ED claims, in accordance with the Income Tax Act. In fact, the CRA aims to audit all new SR&ED applicants in their first or second year, and every three years from that point on. These reviews are entirely distinct from financial audits.

While our scientific experience has been almost entirely positive and our clients often have gone over a decade without a scientific audit, we have heard from contacts in various sectors of applicants losing from 10% to 100% of their claim. Documenting, preparing a legitimate claim and preparing staff are all essential elements to successfully managing a scientific audit process.

Timing FAQs

What is the turn-around time to receive my funds?

The CRA has the following service standards for the SR&ED program, which are actually met in more than 90% of cases:

  • When SR&ED claim is filed within 6 months of fiscal year end (current filing) – The CRA standard is 4 months (average time of 68 days in 2013)
  • When SR&ED claim is filed 7-18 months after fiscal year end (amended filing) – The CRA standard is 8 months (12 for non-CCPC)
We’re a start-up and our revenue is less than our potential claim. Do we still qualify and is it worthwhile to apply at this point?

Your firm does not need to be making any revenue to make a claim under the SR&ED program worthwhile. In fact, there are two big advantages to applying early as a start-up.

  • You can help setup a methodology that simplifies claims moving forward and incorporates the credits into your business plan; and
  • You can alleviate some stress on your cashflow by taking advantage of the refundable tax credits – you can receive a cheque before having made your first sale!
How much time will it take me?

Systems Canada offers different packages to suit different needs. We offer services to limit the contributions of your staff to an absolute minimum. Systems Canada is continually improving upon our proven SR&ED claim preparation methodology to minimize the involvement of your staff, regardless of what level of support you choose.

Are there limits as to how often I can apply?

As the program currently exists, there are no limits as to how often one firm can apply (aside from once annually) so long as it continues to dedicate resources to qualifying R&D projects. Systems Canada is happy to assist with long term R&D planning and strategies to support repeat SR&ED claims. For example, Systems Canada has client organisations that have worked with us to make successful claims for 10 to 25 years in a row.

When is the best time to involve Systems Canada in our application?

We recommend involving us as soon as you have identified projects that may qualify for the program. Systems Canada offers free consultations, and should you decide to engage our services, our early involvement will help to save you time, money and headaches in your application.

Québec’s E-business program

Systems Canada also has significant expertise in preparing claims for the Crédit d’impôt pour le développement des affaires électroniques (CDAE or E-business) program. This program supports corporations that carry out specific activities in the IT sector with tax credits of up to $25,000 per eligible employee. The credit is equal to 30% (24% refundable and 6% non-refundable) of the eligible salaries.

Corporations may be eligible if:

  • Their primary activities are carried out in an establishment in Québec.
  • A minimum of six full-time employees work at least 75% of the time on eligible activities throughout the year.
  • At least 50% of these activities are in computer systems design and related services, software publishing, and certain human resource services.

Activities may include:

  • IT consulting services related to the development, integration, maintenance or evolution of information systems or technology infrastructure, the design or development of e-commerce solutions, or the development of security and identification services.
  • Development and integration as well as maintenance and evolution of:
    • — information systems
    • — technology infrastructure
  • Design and development of e-commerce solutions allowing for monetary transactions.
  • Development of security and identification services relating to e-commerce activities.

Partners and resources

Here are some links to partners and other resources that you may find helpful.

Everything tax related – www.canada.ca/en/revenue-agency.html

Everything SR&ED related – www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html

SR&ED in QC –  www.revenuquebec.ca

E-Business –  www.investquebec.com

Business development assistance – www.bdc.ca

Business export assistance – www.edc.ca

Employment grants and supports – www.canada.ca/en/employment-social-development.html

Industry regulations, grants and supports – www.ic.gc.ca

Research resources, grants and supports – www.nrc-cnrc.gc.ca

What industries are likely to be eligible?

  • Accounting
  • Aerospace
  • Agriculture and Forestry
  • Apparel / Textiles
  • Architecture
  • Automotive
  • Biotechnology
  • Brewing
  • Chemical
  • Commercial Bakeries
  • Computer Engineering
  • Communications Technology
  • Electronics
  • Electrical Research
  • Energy
  • Engineering
  • Entertainment
  • Fabrication (e.g. steel, plastics, wood, composite materials)
  • Food Processing
  • HVAC
  • Import / Export
  • Information Technology
  • Insurance
  • Legal
  • Life Sciences
  • Magnetism Technology
  • Management Consulting
  • Manufacturing (e.g. furniture, jewellery, packaging)
  • Medical Technology
  • Mining
  • Oil and Gas
  • Packaged Foods
  • Pharmaceuticals
  • Plastic Mold Injection
  • Print and Dye
  • Pulp and Paper
  • Software Development
  • Telecommunication
  • Tool and Dye
  • Transportation
  • Waste Management
  • Wholesale Distribution
  • Wineries