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back to index backAMERItalk April,  2005


Canada: Tax credits for research and development

In order to retain and attract research and development (R&D) performers to Canada, the Canadian government has provided R&D tax incentives to businesses since the 1960s. Today, Canada offers the most generous R&D tax incentives among the G-7 nations. In 2003, depending on the province or territory and type of expenditure, every dollar a nonmanufacturing business spent on R&D in Canada ended up costing that business between 41 cents and 51 cents, and manufacturing businesses paid only a penny or two more.

     
The R&D tax incentives are delivered through the Scientific Research and Experimental Development (SR&ED) program, which is administered by the Canada Customs and Revenue Agency. Under this program, businesses that qualify may receive tax credits, a refund, or both. In addition, current and capital expenditures can be fully deducted from income to reduce the tax liability in the current year, or carried forward indefinitely to be deducted in future years. Currently, this program provides approximately $1.6 billion in tax credits to 11,000 claimants each year, making Canada a financially beneficial location for conducting R&D.

Who Qualifies?
Any business that is involved in basic or applied research, or in developing new or improved products, processes, or materials may be eligible for the SR&ED program. The tax credits and refunds are not limited solely to Canadian-controlled businesses. The SR&ED program is available to any business operating in Canada, including sole proprietors, partnerships, trusts, and private and public corporations.
     Businesses from any sector can make a SR&ED application; this includes those in aquaculture, agrifood technologies, agriculture, environment, forestry, pulp and paper, oil and gas, chemical, pharmaceutical, biotechnology, plastics, aerospace, automotive, manufacturing, and information technology.

What Kinds of Projects Qualify?
To qualify under the SR&ED program, the research must advance the understanding of scientific relations or technologies, address scientific or technological uncertainty, and incorporate a systematic investigation by qualified personnel.

Work that qualifies includes:
      •
Basic research to advance scientific knowledge without a specific practical application in view;
      Applied research to advance scientific knowledge with a specific practical application in view;
      Experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones; or
      Support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research, but only if the support work is commensurate with, and directly supports, the eligible experimental development, or applied or basic research.

Work that does not qualify includes market research, quality control or routine testing, research in the social sciences or humanities, prospecting, exploring or drilling, commercial production, style changes, and routine data collection.

What Expenditures Can Be Claimed?
Many of the costs incurred for SR&ED during the fiscal year can be claimed under this program. These may include the costs for salaries or wages, materials, machinery and equipment, equipment leases, overhead related to SR&ED, and the cost of contracting out SR&ED.

How Do Businesses Apply?
To apply for the SR&ED program, businesses must complete Form T661, Claim for Scientific Research and Experimental Development (SR&ED) in Canada, and submit it within 18 months of the business' fiscal year end. Visit the SR&ED website (www.ccra.gc.ca/sred) for forms, guides, and additional information.

What Services Are Available to Assist Claimants?
There are a variety of services for new and potential claimants of the SR&ED program:
      First-Time Claimant Service is designed to help businesses that are new to the program. This service provides access to SR&ED staff who will work closely with the claimant to provide the information, tools, and assistance needed to complete a claim.
      Preclaim Project Review Service was developed as part of an ongoing effort to make the SR&ED program more responsive to '' needs. This service provides an up-front review and a preliminary opinion on the eligibility of projects for SR&ED tax credits. It is designed to help businesses with identifying R&D work that qualifies, and planning and investment decisions; consequently, this service should be used before SR&ED tax credits are claimed, or even before the work is started.
      Account Executive Service provides claimants with a designated contact person from the SR&ED program who can act as the claimant's single point of contact for any questions or guidance needed with regard to the SR&ED program.

A Good Reason to Invest in Canada
The Canadian government has long recognized the importance of R&D in ensuring the country's economic success. As such, the SR&ED program makes conducting R&D in Canada a financially beneficial decision for foreign businesses. With favorable tax credits and expenditure rules, and many services available to assist claimants, the SR&ED program provides the financial incentives for businesses to prosper in Canada.

Additional Information
For more information on the SR&ED program and how its tax credits can help your company's R&D initiatives, visit www.ccra.gc.ca/sred. Information on additional incentives for conducting business in Canada can be found on the Investment Partnerships Canada's website at http://investincanada.gc.ca .

Source: Invest in Canada - GAI


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