Canadian businesses can claim tax refunds on a variety of operating expenses related to research and development, including payroll, business leases, material costs, and equipment costs.
Many businesses may take advantage of SR&ED financing. Any businesses that need to develop new processes to manufacture or improve upon products or otherwise operate their businesses more efficiently may be eligible for this tax incentive.
The SR&ED Program is administered by the CRA. Companies qualify by demonstrating they are conducting R&D; where the outcome is novel, unique and uncertain.
Generally, a Canadian controlled private corporation ("CCPC") can earn a refundable Investment Tax Credit ("ITC") at the enhanced rate of 35% on qualified SR&ED expenditures, up to a maximum threshold of $3 million in Eligible Expenses. (An "Eligible Expense" is typically the salary of a scientific worker and a proxy currently set at 55% of his or her salary attributed to the SR&ED Program).
Additionally, Provincial Governments offer SR&ED Credits on Eligible Expenses, normally ranging from 10% to 20%(2) with the net result that a typical CCPC involved in high technology development can have 60% of their salaries dedicated to R&D refunded (i.i., $0.60 of each $1 of Eligible Expenses). Companies accrue Eligible Expenses throughout their financial year and thereafter typically take up to 6 months to file their tax return (which includes their claim for SR&ED Credits) and then a further 3-6 months to receive their refund, implying up to 12-months delay to receive a SR&ED Credit refund, thereby necessitating the need by CCPC's to borrow against future receipt of a SR&ED Credit refund.
The SR&ED Program provides more than $3 billion in tax incentives to over 20,000 claimants annually, making it the single largest federal program that supports business research and development in Canada.'