Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

2 What is the SR&ED Program? A tax incentive program designed to encourage R&D in Canada Annually, the program provides over $4 billion in Investment Tax Credits (ITC’s) to over 18,000 claimants.

3 How can the Program benefit my company? The program provides financial incentives that help to: Fund the scientific and technological advances that keep your company competitive Better position your company for future SR&ED projects

4 What are the Incentives? The incentive is in the form of an Investment Tax Credit (ITC) which is earned on qualifying expenditures. The ITC earned may be at a rate of 20% or 35% and may be up to 100% refundable Expenditures incurred (including capital) qualify for immediate write off, or indefinite carry forward Pooling concept for both Expenditures and ITC

5 Who is Eligible Canadian Controlled Private Corporations (CCPC) Corporations, other than, Canadian Controlled Private Corporations Proprietorships, Partnerships and Trusts

6 What is SR&ED? The work must fall into one of the following categories: Basic Research – Work done to advance scientific knowledge without a specific practical application in view Applied Research – Word done to advance scientific knowledge with a specific practical application in view Experimental Development – Work done to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes

7 What is SR&ED? Support Work - Work that is commensurate with and in direct support of the above which includes only these 8 activities: - engineering- operations research - design- mathematical analysis - data collection- computer programming - testing- psychological research

8 What is not SR&ED? Market research or sales promotion Quality control or routine testing of materials and devices Research in the social sciences or humanities Prospecting, exploring or drilling for, or producing minerals, petroleum or natural gas Commercial production of a new or improved material, device or product or the commercial use of a new or improved process Style changes Routine data collection

9 What are the Eligibility Requirements? The work must be: 1. A systematic investigation or search 2. Carried out by means of experimentation or analysis 3. In a field of science or technology 4. Undertaken for: Achieving technological advancement or Advancing scientific knowledge

10 What Expenses Qualify? Wages Materials Contracts Equipment Third Party Payments Overheads

11 Overhead Claiming Methods Proxy expenses claimed are limited to direct costs, no overheads in lieu of overheads, claim 65% of direct labour costs Traditional claim direct costs plus incremental overheads costs must track incremental overheads.

12 How do I make a Claim? A claim is normally filed with the Income Tax Return for the year. Two forms must be completed and filed with the Tax Return, forms T661 and T2038 (Sch 31). Form T661 provides a technical write-up of the project(s) and costs claimed. Form T2038 (Sch 31) calculates the amount of ITC and any refund claimed.

13 What is the Review Process? When a claim is received it may be subject to a two part review: 1) A Science review determines the eligibility of the activities undertaken. 2) A Financial review ensures the costs for the activities are correctly allocated.

14 What are the Service Standards? 1. For CCPC’s our goal is to process the claim within 120 days of receiving a complete claim 2. For non-CCPC’s our goal is to process the claim within 365 days of receiving a claim

15 Partnering - Our Respective Roles CRA Responsibility: Maximize client participation Streamline program administration Maintain the program’s fiscal integrity Claimant Responsibility: Self awareness of the program and its requirements File the claim on time Maintain proper books and records Work with program representatives to maximize benefits

16 Services We Provide First time claimant service Pre-claim Project Review (PCPR) Account Executive Service

Who can I contact? Jim Simpson Financial Review Manager Edmonton Tax Services Office (780) arc.gc.ca Website:

Scientific Research and Experimental Development (SR&ED) Tax Incentive Program