Scientific Research and Experimental Development (SR&ED) Tax
What is it?
The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada that will lead to new, improved, or technologically advanced products or processes.
The SR&ED program is the largest single source of federal government support for industrial research and development.
You can apply for SR&ED investment tax credits for expenditures such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts.
What is the benefit to your company?
Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $3 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount.
Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.
Organizations of all forms and sizes and in all sectors are entitled to this tax credit if they have incurred qualifying research and development expenditures.
In order for expenditures to qualify, the key then becomes whether the SR&ED project meets the program's criteria.
Food industry projects involving basic research, applied research, or experimental development qualify for the Scientific Research and Experimental Development tax credit program if they meet these three basic criteria:
- scientific or technological advancement
- scientific or technological uncertainty
- scientific and technological content
The Research and Development process normally includes some or all of the following types of activities, projects or programs:
- new product, packages and/or process development
- technical procedure development
- product improvement, technology advancement, productivity improvement and product line extension
The development of product formulations and manufacturing process specifications will often qualify for SR&ED tax credits. What does that mean to you as a food manufacturer? You may be working to develop products and processes to meet your consumers' needs. That could include designing products to extend shelf life and survive the transportation and distribution conditions that they'll experience as they're potentially shipped worldwide.
The food industry typically designs some key attributes into its products - and that "design" process may be eligible for tax credits. For example, product stability, consistency in quality, flavor, texture, form, extended shelf life and safety are often engineered into a product.
Consumer testing can also become eligible for the tax credits when it is used as an analytical tool in support of a SR&ED project. In addition, plant trials to resolve a scientific or technological uncertainty leading to technological advancement would meet the definition of a SR&ED project.
How do I apply?
The Canada Revenue Agency has advisers assigned to geographic areas in Ontario, and it is suggested that you invite "your" adviser to meet with you to discuss your business and project ideas. They can help you better understand which of your projects will qualify and explain what kind of record-keeping is involved. And they can help you stay "on track' throughout the project. There are also many consultants and accounting firms who can advise you and prepare claims; be sure to use due diligence in selecting them.
Claims are submitted with your corporation or individual income tax return, or within 12 months of your income tax return's filing due date for the year in which you spent money on the SR&ED project. In most cases, your accountant will file the claim along with your income tax return.
Where can I find more information?
On the website you'll also find a listing of upcoming free, half-day information sessions. These seminars provide a general overview of the SR&ED program, explaining the program's eligibility criteria, what expenditures are eligible, and how to file an investment tax credit claim. These seminars are meant for people who are new to the program or are planning on filing a claim. The seminars also cover the Ontario Innovation Tax Credit, and the National Research Council's Industrial Research Assistance Program.
Canada Revenue Agency's SR&ED Offices in Ontario:
(The Ottawa office serves eastern & northern Ontario & Nunavut.)
333 Laurier Avenue West
Ottawa ON K1A 0L9
Telephone: (613) 598-4233
Fax: (613) 952-1856
1 Front Street West, Suite 100
Toronto ON M5J 2X6
Telephone: (416) 973-1717
Fax: (416) 952-8334
55 Bay Street North
P.O. Box 2220
Hamilton ON L8N 3E1
Telephone: (905) 572-2650
Fax: (905) 570-8247
Toronto West Tax Services Office
5800 Hurontario St.
Mississauga, ON L5R 4B4
General Enquiry Line: (905) 566-6010