23 Feb Want Government Funding? Get The SRED Tax Credit [Video]
What is it?: The Scientific Research and Experimental Development, or SR&ED, tax credit sounds like something a large company might use. But it’s actually a tax credit for businesses of all sizes. And the research doesn’t necessarily mean the development of new physical technology. The SR&ED is defined as any experiment or analysis in science or technology that advances knowledge. The Government of Canada can give you a tax credit from 15% – 35%, in the form of cash refund, a tax deduction, or both.
What Qualifies?: To qualify any work as SR&ED, it must be classified in one of three categories. Basic research, which is used to advance scientific knowledge, like research on a virus for example. Applied research, that is similar to basic research but with a practical goal in mind. For example, developing a vaccine for a virus. The last is Experimental Development which is work carried out to advance a technological advancement. This means anything that creates new or improved materials, devices, or products.
SR&ED Procedure: After you’ve made sure that the work qualifies, you must also be sure that the method of the research fits the requirements of the SR&ED credit. The research has to follow the scientific method. This includes having a hypothesis that creates a hypothetical solution to a scientific or technological uncertainty. The procedure must be able to accurately test hypothesis. The experimentation and analysis should lead to conclusions that are also concrete, without being biased or disregarding certain variables.
Filing Deadlines: The filing deadlines are 17½ months for individuals and 18 months for corporations. Make sure to file claims before the deadline even if the project isn’t finished, as there is no provision given to extend the deadline. It’s advisable to make the claim at the same time as filing income taxes.
Expenditures that qualify: Are contracts, overhead costs, salaries, materials, third party payments, and anything else directly related to the SR&ED work. There are two ways to calculate the expenses. The traditional method requires that you itemize and track each cost, while the proxy method allows you to estimate using a proxy amount of 55% for wages.
Reference: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html