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The Scientific Research & Experimental Development (SR&ED) Program

A Brief Introduction October 2010

What is “SR&ED”?

• The Scientific Research & Experimental Development (SR&ED) tax incentive program … money from the government to encourage businesses, from small to large, to pursue advancements in their own technical capabilities, regardless of the industry. • Administered by the Canada Revenue Agency (CRA) • Provides over $4 billion annually in investment tax credits (ITCs) to more than 18,000 claimants • Approx 75% of claimants are small to medium businesses (SMB)

What is “SR&ED”?

• •

You don’t have to be a research lab to claim SR&ED. Here’s a few examples of industries that have successfully claimed: • Software • Telecommunications • Electrical and electronics • Printing and image processing • Energy and environment (cleantech) • Cosmetics • Food industry (catering, bakeries, food plants, etcetera) • Manufacturing and metalworking


What is “SR&ED”?

• Robotics and manufacturing systems • Tools and dies • Dental labs


What can SR&ED Do For You?

You may receive: • A refundable investment tax credit • A reduction in taxes payable • Both of the above

Who Can Claim?

Canadian Controlled Private Corporations (CCPCs) • Receive a refundable ITC applied first to taxes payable, refund on the balance • Different types of claimed SRED expenditures receive a differing ratio of refund: • Payroll – 67% • Contractor payments – 40% • Materials – 40%

Proprietorships, Partnerships, Trusts • Receive 50% of the refund enjoyed, on the same expenditures, compared to CCPCs

Who Can Claim?

SR&ED work claimed must be related to your business • fundamental requirement

Definition of SR&ED

SR&ED is … “systematic investigation or search carried out in a field of science or technology by means of experiment or analysis … to advance scientific knowledge or to achieve technological advancement”

Categories for SR&ED work

3 Categories for SR&ED work: 1. Experimental Development (most common): work done to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes 2. Applied Research: work done to advance scientific knowledge with a practical application in view 3. Basic Research: work done to advance scientific knowledge without a practical application in view

To Qualify:

Work must be a systematic investigation carried out by means of experiment or analysis, and carried out in a field of science or technology (that is not excluded under the legislation), in pursuit of advancement or scientific knowledge. By systematic they mean: 1. Identifying the obstacle 2. Formulating an objective 3. Developing a plan of action, including method of experimentation 4. Testing the hypothesis

To Qualify – three criteria

Technological Uncertainty • When trained, experienced professional staff don’t know how best to proceed

The pursuit of Technological Advancement • Seeking… not necessarily finding …success is not a qualifying criteria • An incremental improvement to the performance of the underlying technologies in your project, or your know-how about them

Scientific or Experimental Approach • Systematic, and experimental

Work Directly in Support

The law specifies 8 types of supporting work only, which must also be corresponding to the needs of the core research: 1. Engineering 2. Design 3. Operations Research 4. Mathematical Analysis 5. Computer Programming 6. Data Collection 7. Testing 8. Psychological Research

Not SR&ED, Not Ever

The law excludes the following from being claimed: 1. Market research or sales promotion 2. Quality control or routine testing of materials, devices, products or processes 3. Research in social sciences or humanities 4. Prospecting, exploring or drilling for, or producing minerals, petroleum or natural gas 5. Commercial production of a new or improved material, device or product, or the commercial use of a new or improved process 6. Style changes 7. Routine data collection


SR&ED is ultimately about linking a body of qualifying technical work with the costs of doing that SR&ED work, together with work that is directly in support You can claim: • Salaries and wages • Materials • SR&ED Contracts • Equipment lease costs • 3rd-party payments • Capital expenditures

SR&ED Critical Concept

A CRA science reviewer: “the issue is not what you do with the technology, but what you do to the technology”

Frequently Asked Questions (FAQs)

• Of course, we’re talking about this program at the very highest level, so there are bound to be questions. • Here are some frequently asked questions that we’ll discuss quickly:
• Q: What about other tax credit or incentive programs? If I claim SR&ED, can I claim anything else? A: Claiming SR&ED does not exclude you from claiming incentives under any other program, whether Federal or Provincial.

Frequently Asked Questions (FAQs)

• Q: Is there a time limit for submitting SR&ED claims? A: SR&ED claims must be submitted within 18 months of the fiscal year-end. • Q: Does the government control how your refund is used? A: No. • Q: Does my filing for SR&ED have any input on how CRA treats my corporate return? A: No impact at all.

Other Questions ?

• Questions ? • Nadya Geddes 416-800-0914 • Dmitry Brusilovsky 647-588-7777

Thank you

• • 647-588-7777