Canada & Ontario offer some of the most generous R&D tax credits through their Scientific Research & Experimental Development (SRED) program. Additionally, there are many provinces, like Ontario that also offer their own R&D tax credits, and the good news is that these credits are readily available to Canadian and Ontario companies as long as they meet certain criteria.
What the Canadian Revenue Agency Says
The CRA uses three distinct qualifiers in order to determine what will and will not be accepted as legitimate work in regards to the SRED Program. These qualifiers include:
1. All work has to advance the understanding of certain technologies or scientific relations.
2. All work has to address a technological or scientific uncertainty.
3. All work has to be systematically investigated using qualified personnel only.
Most often, types of work projects that include scientific research or experimental development, scientific or technological applied research, and even basic research and support in regards to science or technology will qualify for the SRED Program. However, the best information comes by way of the CRA’s website, as it has a whole list of work projects that will qualify and a whole list of work projects that will not as well.
Considerations for SRED
When thinking about applying for SRED tax credits, companies should keep a few things in mind. All work that is to be conducted needs to be working towards something new. An all too common mistake is to conduct research & development on something that is already common knowledge. The whole idea of the program is to make advances in science and technology, so the fresher the thinking, the better.
Furthermore, it is a common belief that in order to get the R&D tax credits, the experimental research must be a success. Just as with any other act of scientific research, it is more about the actual process and not so much about the end result.
Another misconception that holds many qualified candidates back is the thinking that the SRED Program is one that requires a lot of paperwork to be filled out, followed by a long ‘wait and see’ process. However, those who meet the criteria need only fill out Form T661 and include it along with the appropriate tax credit schedule with their tax return, and a there are a number of qualified SRED consultants to help you with this process.
Additional Incentives Companies May Qualify for
Provincial governments in Canada (like Ontario) also offer various R&D tax credits to those who qualify. One main difference with these tax credits is that they only apply to corporations, unlike the SRED Program, which can be applied to corporations, sole proprietors, and the like.
