Scientific Research & Experimental Development Investment Tax Credit Program

Yukon Research, Innovation and Commercial Conference

Thomas Hu (604) 691- 3832

SR&ED Tax Incentive Program

a tax incentive program to encourage Canadian businesses of all sizes to conduct R&D that will lead to new or improved technologically advanced products or processes

largest single source of federal government support for industrial research and development

Used by over 21,000 publicly or privately owned Canadian companies, Partnerships, individuals annually

Provides ~ $3.3 billion/year in tax credits/cash CRA is responsible for administering the SR&ED

program (by HQ + 10 regional offices), while the Department of Finance is responsible for the legislation

What the Program Offers

• Investment Tax Credits (ITCs) can be:• offset against federal taxes otherwise payable and/or

refunded

• ITCs of 20% or 35%• Allowable SR&ED expenditures incurred

(including capital) qualify for immediate write off, or indefinite carry forward

• Pooling concept for both SR&ED expenditures and ITC

Requirements

• Claimant must operate a business in Canada in the taxation year

• Expenditures must be incurred

• SR&ED must be carried out in Canada directly by the claimant or on his/her behalf

• Certain expenditures for SR&ED performed outside Canada are now permitted

• The SR&ED must be related to the claimant’s business

• You have to file your complete claim by your Reporting deadline: the day that is 12 months after the filing due date of the return of income for the year

What Work Qualifies?

Work must meet the legislative definition of SR&ED: a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis

Categories:

a. Basic research

b. Applied research

c. Experimental development

d. Work in support

a. Basic Research work undertaken for the advancement of Scientific knowledge without a specific practical application in view

How did the universe begin?

What are protons, neutrons, and electrons composed of?

What is the specific genetic code of the fruit fly?

b. Applied Research work undertaken for the advancement of scientific knowledge with a specific practical application in view

improve agricultural crop production

treat or cure a specific disease

improve the energy efficiency of homes, offices, or modes of transportation

c. Experimental Development work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements

engineeringdesign data collection testingmathematical analysis computer programming operations researchpsychological research

d. Support Activities work which is commensurate with the needs, and directly in support of the work described above including:

Example - Thermodynamics

• Basic Research: U = Q-W

• Applied Research:

• Experimental Development:

• Support Activity

e. – k. Excluded Work

Social Sciences or humanitiesMarket research or sales promotionQuality control or routine testingRoutine data collection, engineering or

designStyle changes Commercial production or useProspecting, exploring or drilling for, or

producing, minerals, petroleum or natural gas

Eligibility Requirements

The work must be a systematic investigation or search, The work must be carried out in a field of science or

technology that is not excluded by this legislation, The work must be carried out by means of experiment or

analysis, and The work must be undertaken either:

• for the purpose of achieving technological advancement, or• for advancing scientific knowledge.

For any research and development work to be “Eligible”:

These requirements must be met for any work to be eligible SR&ED.

Use self-assessment tool @

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/ssssmnt/menu-eng.html

Project Information

A. Field of Science or Technology, date

B. For Experimental Development• Technological advancements achieved • Technical Obstacles overcome• Work performed

C. For Basic or Applied Research• Scientific knowledge advanced• Work performed

D. Additional Information, evidence

E. Project Cost

Evidence

Project planning documents Records of resources allocated to the project, time sheets Design of experiments Project records, laboratory notebooks Design, system architecture and source code Records of trial runs Progress reports, minutes of project meetings Test protocols, test data, analysis of test results, conclusions Photographs and videos Samples, prototypes, scrap or other artefacts Contracts Others

Project ModelMotivation

Business objectives – Market Research - Constraints

Commercial use

Product/System

Objective(Hypothesis))

Experimentation

AdvancedTechnology/

Process

Support Work

SR&EDEligibility

Requirements

Strategic Game Software Development Initial Planning Technical Review Initial Themes & Concept Mathematics Art & Animation Build Delivery

Eligibility components?

Continuous Manufacturing Process

Eligible or not?

Free Science Access Information Packages, Seminars and

Presentations First Time Claimant Service

Pre-Claim Project Review (PCPR)

Account Executive Service

CRA cannot:

Provide advanced rulings on projects

Prepare your claim

T661E - expenditure

T2 SCH31

- federal credit corporation

T2038 (IND)

- federal credit individual

T666 E

- BC credit corporation

T2 SCH442

- Yukon credit corporation

T1232

- Yukon credit individual

Completeness of Forms

File a complete claim ASAP use the latest forms To speed-up the processing of your claim, place

the T661, Schedule 31 and project description on top of your tax return.

You have to file your complete claim by your Reporting deadline: the day that is 12 months after the filing due date of the income tax return for the year (don’t miss)

Different types of claims have different service standards

The SR&ED program is committed to meeting these service standards at least 90% of the time.

CRA Claim Processing

Claim received at the Tax Centre

Completeness Check and Initial Risk Assessment

Claim sent to Tax Services Office Desk Risk Assessment

Review of Projects (RTA) Expenditures (FR)

Notice of Assessment sent to the Claimant

Confidentiality Confidentiality

www.cca-arc.gc.ca/sred

1-866-317-0473