Canadian Manufacturing companies are looking for the answer to the question what is the SR&ED program? The Scientific Research & Experimental Development (SR&ED) program is a tax incentive program developed by the Canadian Federal Government, funded by the Canadian Revenue Agency. The SR&ED program supports technical advancement in Canada.
The program encourages Canadian manufacturing companies to conduct R&D with respect to developing new or improved products or processes. Manufacturing companies perform these types of technical activities, as advanced scientific research and/or shop-floor R&D, everyday in order to remain competitive. That is why most manufacturing companies, large or small, do qualify for the SR&ED Program. The SR&ED program is made up of two distinct components: technical and financial. All technical and financial information supplied by the company to the CRA is strictly confidential.
What is the SR&ED programs financial model? The CRA provides billions of dollars per year in tax credits for the SR&ED program and there is no cap on program spending. If your SR&ED expenditures qualify, you will receive the applicable refund or credit. Depending on the ownership of your manufacturing company, you are eligible for tax credits or refunds in the amount of 20-35% of R&D associated labour, overhead and material costs. Ontario and other provinces offer complimentary programs for which many companies will automatically receive the provincial tax credits when their SR&ED claim is approved. An SR&ED claim must be filed within 18 months from your fiscal year end to be considered.
The Tax Credits included within the program can be used to offset payable taxes or reimbursed as a cheque to the company. Either way, monies returned to the company can be reinvested in new equipment, more employees or expanded facilities, allowing for growth and continued operation during such times of economic uncertainty.
Our last question to answer is what is the SR&ED program’s technical scope? Many types of R&D projects are included within the technical scope of the SR&ED program. Companies may be performing basic research for which a specific practical application has yet to be developed or applied research for which a specific practical application has been developed. Projects may include experimental development in the creation of new or improving existing materials, devices, products or processes.
Also included within the program scope is the R&D supporting activities such as engineering, analysis, and testing and data collection. An interesting fact about SR&ED is that the claimed R&D projects do not have to be successful. An incremental product or process improvement can qualify, as can an attempt only at resolving a technological uncertainty. There are many steps a company can develop to streamline their SR&ED claim process. Implementation of a long-term action plan to track and file claims on a yearly basis, ensures continued program success. SR&ED consultants can be retained. They can provide professional guidance and instructional materials that will aid in the development of eligible projects and the preparation of supporting technical and financial documents required for the successful processing of your claim.
