SR&ED Frequently Asked Questions

What is SR&ED (also known as SRED)?

Scientific Research & Experimental Development (SR&ED) is a tax incentive program administered by Canada Revenue Agency (CRA), that supports businesses conducting research and development (R&D) activities in Canada.

Who can apply for SRED Tax Credits?

Small and Medium sized businesses that undertook R&D in Canada, for the purpose of scientific or technological development can apply. Please note if your business is a:

Canadian Controlled Private Corporation (CCPC) then you could benefit from greater, refundable tax credits, compared to a foreign and/or publicly owned corporation

What are the benefits of the SR&ED Program?

If your business is eligible to apply for such incentives, then the program can provide tax credits that are refundable, non-refundable, and/or a combination of these, which can:

extend R&D dollars by 20% to 35%
be used to offset the amount of tax payable or owing to CRA in current year
reduce net taxable income through SR&ED expenditures deducted from revenue
be carried back either 3 years, or carried forward 10 years

How do I know if my R&D Project is eligible?

Three criteria a business must meet to qualify for SR&ED tax credits:

Scientific or Technological Uncertainty: you faced technological challenges throughout the process of your work
Scientific or Technological Advancement: your project furthered the scientific or technological knowledge-base of the company, and/or findings from the project contribute new knowledge to the field of science and technology
Scientific or Technical Content: the project work involved iterations to try and overcome the challenges and uncertainties

What Industries are Eligible?

Business under any industry can apply for SR&ED credits, but typically we find popularity in:

Information Technology
Manufacturing and Engineering
Agriculture and Agri-food
Biotech, Life Sciences & Medical/Health Tech
Clean Tech & Sustainable Technologies
Oil, Gas, Energy & Mining
Media & Communication

What Type of Work Activity Qualifies?

What Type of Work Does Not Qualify?

Experimental Research: work undertaken for the purpose of technological advancement to create new materials, products, processes, or devices
Applied Research: work undertaken for the advancement of scientific knowledge with a practical application in view
Basic Research: work undertaken for the advancement of scientific knowledge without a practical application in view
Support Activities: must be commensurate with the needs and directly in support of the research listed above

Commercial production, market research or promotion
Quality control or routine testing
Social sciences or the humanities
Aesthetic or style changes
Routine data

What are the Areas of Supporting Work?

Engineering
Design
Operations Research
Mathematical Analysis
Computer Programming
Data Gathering
Testing

What is the Deadline to Submit an SR&ED Claim?

A SR&ED claim must be filed 18 months following the fiscal year in which the research and development was conducted.

What if we Already Received Other Government Funding?

You can receive funding from multiple government sources. Our SR&ED consultants can help you take advantage of various programs to obtain maximum funding.

What SR&ED Expenditures are Eligible?

What SR&ED Expenditures are NOT Eligible?

Salaries and wages
Fees paid to Canadian subcontractors
Any materials that are used for research, whether you consume or transform them
Overhead costs related to project activities

Projects costs related to sales and promotion, routining data collection and commercial production
Capital equipment costs
T4A self employed wages
Payments to contractors who are not registered

Is there a Maximum Amount I can Claim?

There is no predefined maximum amount, all expenditures are eligible to be submitted as long as they meet the SR&ED program criteria.

How long does CRA take to Process my Claim?

For claims submitted with the T2 corporate return, the CRA’s service standard timelines are between 90 to 120 days to process the claim. Meanwhile, if a T2 is amended with SR&ED data, then it can take between 180 to 240 days.

What are the Elements of a Good Project Description in an SR&ED Application?

Brief & concise
Clearly state the hypothesis or purpose of the R&D project
State the scientific or technological objectives
Describe the technological uncertainties to be resolved, the technical advancements being pursued and the work carried out in the claim year
List documentation available to support such work

What Documentation is Required to Support my Claim?

The documentation should demonstrate the project activities, data collection and analysis. It should be contemporaneous and highlight technical challenges. In such instances, these documents will also be associated with expenditures related to eligible SR&ED activities.

Below are examples of eligible documents:

Timesheets
Meeting minutes
Emails
Invoices/receipts
Contractor agreement outlining the statement of work
Task management software
Project planning documents & records
Contracts
Samples, prototypes & other artifacts

For additional information on how to support your claim, click here.

What Forms do I need to Apply for SR&ED Tax Credits?

Income Tax Return
T661 – Scientific Research and Experimental Development Expenditures Claim
T2SCH31 – Investment Tax Credit or T2038-IND – Investment Tax Credit
The applicable provincial incentive forms

Is the SR&ED Program Solely Designed for Advanced Scientific Research that Leads to a breakthrough?

No. SR&ED eligible projects do not necessarily involve cutting edge innovation. They do include experimental efforts that take place during the development or improvement of products and/or processes. Aiming at incremental and minor improvements can qualify for SR&ED.

Do I Qualify for SR&ED if my Project did not have a Successful Outcome?

The success of the project does not affect eligibility. An attempt to resolve technological uncertainty is sufficient, along with satisfying CRA’s five questions:

Was there scientific or technological uncertainty?
Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
Was a record of the hypotheses tested and the results kept as the work progressed?

Claiming SR&ED Tax Credits in the Software Industry

What Software Projects Qualify?

What Software Projects do not Qualify?

Development of new/improved techniques and methods in computing to store, process, search, and manage big data
Advancements necessary in:
support of software technology stack or tools
new or improved infrastructures
support scaling, reliability, and availability of software-based systems
Advancements in other technology areas like vision, facial and image recognition, medical imaging and control systems

Projects designed with commercial advancement in mind rather than technological advancement
R&D solutions acquired from public domain base, such as user groups 3rd party literature
Projects integrating known technologies with predictable outcomes
Fixing bugs, routine development, standard design and standard coding
Projects heavily focused on user interface and redesigns
Tech support documentation
Enhancing features and functionalities

How much does the SR&ED Program Fund?

Canadian software developers can fund up to 64% of their research and development costs.

What Expenditures are Eligible?

Waged employees
Up to 80% of invoice
Overhead

How can I be sure my Claim will be Approved?

If you answer “yes” to the following five questions, your claim is likely to be approved

Was there scientific or technological uncertainty?
Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
Was a record of the hypotheses tested and the results kept as the work progressed?

What Constitutes a Valid Claim?

A valid claim will be based upon:

New constraints rather than simple adaptions
Serious alternative having to be explored through analysis and testing
Development of new knowledge that is applicable beyond the present project
Development of new algorithms

How does my Project Qualify ?

The three key criteria must ALL be met. A company needs to show that their work attempts:

1. Technological Advancement

Results of technical work
Increases technical knowledge

2. Technological Uncertainties

Competing contraints
Non deterministic development environment
Lack of knowledge

3. Systematic Investigation

Defining a problem
Advancing a hypothesis
Planning and testing the hypothesis
Developing logical conclusions

What Documentation do I Need?

It is important to keep documentation that proves technological advancement, technological uncertainties and systematic investigation.

Documentation for technological advancement includes providing details of steps taken in the research process. The steps should include:

A list of internet research, relevant articles you identified and the shortcomings they benchmarked
Patent searches for existing software
Queries to experts for additional guidance

Documentation for technological uncertainties can be shown by proving either scientific or system uncertainty.

Documentation of systematic investigation can be the project’s hypothesis, the method in which you tested the hypothesis or the results.

The more documentation you provide, the more likely you are to receive maximum funding!

What are some Tips for IT Companies looking to Secure SR&ED Funding?

Focus on the technological benefits of your R&D
Adopt time-tracking for your staff
Look for technological trade-offs and repeated failures

For additional information check out our detailed page on SR&ED tax credits here

Need help? Call our tax funding and grants specialist team at (647) 709-6368

CONTACT US

Tax Incentives Made Easy (TiME) Consulting Group Inc.
” 95% success. 15+ years expert SR&ED credits and gov. grants for your business innovation.”

Phone: +1(647) 709-6368

E-mail: gshah@timeconsulting.ca