Sometimes it’s good to revisit the basics of the
SR&ED program so that we don’t get so close to the tree that we can’t see
the forest. My following comments are made in the context of a corporation.
The purpose of the SR&ED legislation is to induce
technological advancement within Canadian industry. This requires research and
experimental development. The SR&ED program encourages that activity through
offering investment tax credits that are based on the quantum of eligible
expenditures. In most cases these investment tax credits are refundable, which
means that if a claimant’s investment tax credit exceeds their income taxes
owing, the excess will be a cash payment to the claimant.
The program is generally administered by CRA since it
is legislated via The Income Tax Act of Canada, and the rate of credit is 15%
or 35% (of eligible expenditures) for the Federal portion and varying amounts
for the provincial portion. The rates vary from province to province. The 35% is for the first $3 million per year
for small business corporations. That $3,000,000 is eroded by $10 for each
dollar that the previous year’s taxable income exceeds $500,000. Expenditures beyond the $3,000,000 (or the
lower eroded amount if the previous year’s taxable income exceeded $500,000)
earn only 15%. And if the applicant is a foreign corporation, the rate is 15%.
The 15% credits are not refundable.
Added to this amount is the relevant provincial
credit. In BC it is 10% of the first $3,000,000 of annual eligible expenses. In Alberta the cap is $4 million. There are
other rules in each of these provinces, and in the others as well, but I am
just trying to give a basic sense of the program.
In the next post in this series, I’ll discuss what
kind of work qualifies for this program.
