How SR&ED Tax Incentive Program Can Be a Boon for Your Business
The term SRED or SR&ED stand for “Scientific Research and Experimental Development”, which has been designed and initiated by the Government of Canada.
The federal tax incentive program was introduced to encourage businesses of all sizes in all sectors. The Canada Revenue Agency (CRA) acts as the regulatory of the program,and it encourages businesses to apply for their right with the accordance of the country’s tax laws and the policies of the program.
Their policies have been designed to reward entities for initiating research and development activities in Canada. CRA is also committed to organize and regulate the program with the integrity of the financial year. This article will highlight all important aspects of the SR&ED program that you will need to know.
The Benefits of SR&ED
The incentive program comes with twofold advantages. The first one is that the provisions of the program will allow you to deduct SR&ED expenditures from your income.
The second advantage is that it will provide you with an investment tax credit, which can be used to minimize the volume of payable income tax with the accordance of the Income Tax Act.
Also, Canadian-Controlled Private Corporations (CCPC) can obtain SR&ED tax benefits of 35% for the expenditure up to the first $2 million. Companies can earn a tax credit of 20% if the expenditure crosses the 2 million mark.
Eligibility to Enjoy the SR&ED Provisions
Businesses in Canada often fail to enjoy the beneficial provisions of the SR&ED tax incentive program believing that the program has been designed to help large-scale enterprises. However, the truth is that any company can enjoy the benefits of the SR&ED tax program.
If your business or your employees are associated with the task of finding solutions for technological problems needed by all relevant industries, then your business or the employees can be fully or partially eligible for SR&ED provisions.
In some cases, businesses that have enjoyed SR&ED provisions are considered comparatively “Low Tech”. This depends on the demand and importance of their products or services. Like if your company is a welding firm or you produce tool and die, it may be recognized as “Low Tech”.
How to Make a Claim
If your business is compliant to the SR&ED polities and entitled to enjoy the benefits, then you can make your claim with the form of T661 or T2SCH3. Before you think about making your claim, you have to file an income tax return. To know more about the procedure of SR&ED claim, you can contact your nearest tax services office. Make sure that you have submitted the claim form within the deadline of reporting SR&ED.
Here, you should know that the reporting deadline to file the claim form is 18 months from the end of the financial year for entities, where you have made the expenses.For individuals, the deadline is 17.5 months.
Important Things to Keep in Mind
The Canada Revenue Agency (CRA) can take your case and review your claim for technical and financial verification. This helps CRA to ensure if your claim meets the criterion prescribed in the Income Tax Act. Also, the research and technology advisers at the SR&ED can examine your claim to ensure if it has been prepared to meet the definition of the SR&ED program.
Through the review, experts at the SR&ED will look at the costs involving the claimed work and ensure the costs are eligible for SR&ED expenditure. Here you should know that all the financial records provided you will be protected by SR&ED’s strict security and safety policies.
The SR&ED tax incentive program is a beneficial way for taxpayers that help them to enjoy many provisions under the assurance of federal government and Income Tax Laws. The program is suitable for entities of all size and sectors involving research and development activities.