Understanding the SR&ED program: A gateway to innovation for Canadian businesses

In the vibrant landscape of Canadian innovation, the Scientific Research and Experimental Development (SR&ED) program is the government’s way of encouraging cutting-edge research and development in the country. In other words, whether you’re a fresh startup, an entrepreneur, or an established organization, if you’re pioneering advancements in your field, the government wants to give you money!

In this blog, we’ll get into what the SR&ED program is and equip you with the knowledge to determine if your business qualifies for this government incentive. Let’s dive in!

What does SR&ED mean?

SR&ED stands for Scientific Research and Experimental Development. Let’s break it down:

Scientific Research

This is the process of asking questions about the world around us and using established scientific methods to find answers. It’s about expanding our scientific or technological knowledge and understanding in a particular field.

Experimental Development

Once we have some technological knowledge, experimental development is where we put that knowledge to work. This involves creating new products, processes, or materials, or improving existing ones. It’s all about innovation and putting those advancements in knowledge into action.

So, SR&ED basically covers the whole journey – from asking scientific questions to using that knowledge to develop something new and innovative.

What is the SR&ED Program?

The SR&ED program recognizes that the stages above are crucial for technological advancement – but they can also be expensive. So, it provides Canadian businesses with tax incentives to offset the costs associated with conducting SR&ED work. It’s a critical part of Canada’s innovation policy, aimed at making our country a global leader in scientific and technological advancement.

Who can benefit from the program?

The SR&ED program isn’t picky about the size and/or industry of the work. Corporations, individuals, trusts, and partnerships that do eligible SR&ED work within Canada can benefit.

Industries that can qualify include manufacturing, IT and software, health sciences, oil and gas, biotech, construction, agricultural, cannabis, and food and beverage. 

This inclusivity ensures that a wide variety of groups can access the SR&ED program’s benefits, regardless of their operational scale or industry. 

If you’re looking to calculate the value of our SR&ED refund, use our calculator. 

How can businesses benefit from the SR&ED program? 

The SR&ED program offers two primary benefits:

Deduction against income: Businesses can calculate their allowable SR&ED amount incurred over the year and use this to reduce their net income, which in turn lowers their income tax payable.

Investment tax credit (ITC): A more direct financial benefit, the ITC allows businesses to earn credits at a basic rate of 15%, with some corporations eligible for an enhanced rate of 35%. These credits can significantly reduce the income tax payable, and in some cases, part of the ITC may be refundable, offering an immediate cash benefit.

Changes to SR&ED

While the core principles of SR&ED remain the same, the program has several proposed reforms in the 2024 Fall Economic Statement. These proposed SR&ED reforms are meant to be in effect for taxation years that begin on or after December 16, 2024:

• Restoration of capital expenditures: For the first time since 2014, the government proposed that capital expenditures be eligible again under the SR&ED program. This would mean that the costs of equipment, machinery, and other depreciable property used directly for R&D work could be claimed for tax credits and deductions. This proposed change would apply to property acquired on or after December 16, 2024.
• Increased expenditure limit for enhanced credits: It was proposed that the annual expenditure limit for Canadian-Controlled Private Corporations (CCPCs) to claim the enhanced 35% tax credit be raised from $3 million to $4.5 million. This would allow qualifying companies to receive more financial support for their R&D activities.
• Extending eligibility for public corporations: Another major proposal was to extend the enhanced 35% refundable tax credit, which was historically reserved for CCPCs, to include eligible Canadian public corporations. This would provide larger companies with a new source of cash flow to fuel their research and development efforts.
• Higher phase-out thresholds: The taxable capital phase-out thresholds for the enhanced credit have been raised from $10 million and $50 million to $15 million and $75 million, respectively. These new thresholds apply to taxation years that begin on or after December 16, 2024.

Wrapping up

The SR&ED program is more than just money from the government – it’s a testament to Canada’s commitment to innovation and technological advancement. 

For businesses poised to explore the unknown or redefine the boundaries of what’s possible, the SR&ED program is a valuable resource that can help transform ambitious ideas into reality. Take this as your sign to embrace the opportunity, and let your business be a part of Canada’s thriving culture of innovation!