Scientific Research and Experimental Development Tax Incentive Program (SR&ED)
If your business is engaged in scientific research and experimental development (SR&ED), you may be able to earn tax incentives that reduce your income tax payable.
Corporations, individuals, trusts, and partnerships that conduct SR&ED work in Canada may be able to:
1. Claim a deduction against income
2. Earn an investment tax credit (ITC) that they can apply against their income tax payable
Offered by Canada Revenue Agency
Amount
Investment tax credit at a basic rate of 15%; some corporations may claim an ITC at the enhanced rate of 35%; some businesses may also earn a refundable ITC; plus a deduction of allowable SR&ED expenditures against income
Quick eligibility check
Who can apply
Corporations, individuals, trusts, and partnerships that conduct SR&ED work in Canada may be able to:
For your work to be eligible for SR&ED tax incentives, it must be conducted in Canada and meet both of the following requirements:
- The work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement
- The work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis
What is an advancement
An advancement is the generation or discovery of new knowledge that moves the understanding of science or technology forward.
New knowledge is needed when it is unknown or uncertain that a given result can be achieved due to an insufficiency in the scientific or technological knowledge base that existed at the start of the project. This is referred to as the scientific or technological uncertainty.
Overcoming the uncertainty and gaining new scientific or technological knowledge is the reason why the SR&ED work is done.
You do not have to achieve your goal in order to gain new knowledge. For example, if your work allowed you to understand that the idea you tested is not a solution for your situation, this can be considered new knowledge.
What is important is that the knowledge gained advances the understanding of science or technology, not how the work advanced your business or business practices.
For detailed information, review The "Why" requirement, Guidelines on the eligibility of work for SR&ED tax incentives.
What is a systematic investigation or search
A systematic investigation or search refers to how SR&ED work is carried out. It is more than just having a systematic approach to your work, or using established techniques or protocols.
A systematic investigation or search must include the following steps:
- Defining a problem
- Advancing a hypothesis towards resolving that problem
- Planning and testing the hypothesis by experiment or analysis
- Developing logical conclusions based on the results
For detailed information, review The “How” requirement, Guidelines on the eligibility of work for SR&ED tax incentives.
If you receive other government funding for research and development (R&D), your work may still be eligible for SR&ED tax incentives.
Eligible types of work
Make sure that the work you claim is eligible work and does not include work or activities you cannot claim.
Eligible types of work include the following:
Basic research
Basic research is work that aims to advance scientific knowledge without a practical application in view. It often takes place in laboratories and may be published in scientific journals.
Example of basic research
An example of basic research is the study of a newly discovered virus to better understand its characteristics.
Applied research
Applied research is work that aims to advance scientific knowledge with a practical application in view.
Example of applied research
An example of applied research would be efforts to develop a vaccine against a new virus by exploiting some characteristics of that newly discovered virus.
Experimental development
Experimental development is work that aims to generate or discover technological knowledge or know-how in order to develop or improve materials, devices, products, or processes, including incremental improvements.
Example of experimental development
For example, experimental development could occur during the scale up and optimization of processes to enable large-scale and rapid production of a vaccine.
To review the legal definition of SR&ED, refer to how SR&ED is defined in the Income Tax Act.
Support work
Some support work may be eligible if it matches the needs and directly supports the basic research, applied research, or experimental development work.
What is support work
Eligible support work must directly support and be commensurate with the needs of the basic research, applied research, or experimental development work. This means it must correspond in the amount, size, extent, or duration that is needed to carry out the SR&ED work.
Eligible support work must be in one of the following categories:
- Engineering
- Design
- Operations research
- Mathematical analysis
- Computer programming
- Data collection
- Testing
- Psychological research
Example of support work
For example, if you are scaling up production of a vaccine, you may perform tests on your new production process. This testing could be considered support work for your experimental development.
About the funding
- Claim a deduction against income
- Earn an investment tax credit (ITC) that they can apply against their income tax payable
- Partnerships allocate the ITC earned to their eligible partners
To claim a deduction against income, you will need to calculate the allowable SR&ED expenditures that you incurred in the year.
Show all funding details
You can then calculate your pool of deductible expenditures and use any balance to reduce your net income for the current year or a future year.
Earn an investment tax credit (ITC)
You may earn an ITC to reduce your income tax payable for the year.
Your business may earn the credit at a basic rate of 15%. Some corporations may claim an ITC at the enhanced rate of 35%.
Some businesses may also earn a refundable ITC.
Other government R&D funding and assistance will not prevent your work from being eligible for SR&ED tax incentives, but they will reduce the amount of ITC you can earn.
For example, if you receive NRC IRAP, it will reduce the amount of ITC you can earn.
Provincial and territorial R&D tax credits may also be available, although they will reduce the expenditures you can claim for SR&ED.
Choose the proxy or traditional method, and determine which expenditures may be allowable (salary or wages, materials, contracts, overhead, and third-party payments)
Similar programs
| Program | Type | Amount | Status |
|---|---|---|---|
| Investment Tax Credits (ITC) on Qualified Expenditures for Scientific Research and Experimental Development (SR&ED) | Tax Credit | Non-refundable ITC of 15% of the SR&ED qualified expenditure pool | Open |
