SR&ED Financial Benefits

Startups can burn through a lot of cash quickly, and often use up much of their initial investment capital to develop their products ready for sale. They finish that process with inadequate cash for proper marketing and advertising.

Many startups don't realize that they can recover about half of the SR&ED costs already incurred. Some are intimidated by the "academic" rules used by Canada Customs and Revenue Agency (CRA) to determine eligibility, or overwhelmed by the additional paperwork involved. Others are fearful of disclosing trade secrets that may jeopardize their competitiveness or planned patent applications.

In aggregate, the tax credits amount to 10 times the corporate research funded by the National Research Council. Surprisingly, one quarter of Canada's technology companies do not take advantage of the financial benefits of the SR&ED investment tax credits.

Use the Scientific Research and Experimental Development (SR&ED) program to expand your research and development budget, or to top up your advertising & marketing budget for the next phase of your business growth.

How much is the SR&ED Tax Credit?

Canadian Controlled Private Corporations ("CCPCs") recover a significant portion of their research and development costs from the federal government:

  • up to 56% of employee salaries
  • up to 35% of contractor invoices
  • up to 35% of materials
  • up to 35% of capital expenditures

In addition, Alberta corporations can receive an extra 10% tax credit refund on top of their federal SR&ED claim.

When is the SR&ED Filing Deadline?

R&D Tax Credit Claims must be submitted within an 18-month window after each fiscal period. For example, if your company's fiscal year ends on June 30, 2009, then December 31, 2010 is your deadline for filing your 2009 SR&ED claim. New claimants may be able to file two SR&ED claims, including for the prior year. Not only is it a more efficient process, but you can receive a government cheque for both fiscal periods at the same time!

How fast can you receive your Tax Credits?

Mobile Application development is one type of Research & Development CCPCs typically receive their cheques in 3-4 months when the T2 Corporate Income Tax returns are filed simultaneously. If the T2 and SR&ED Tax Credit claims are filed separately, the SR&ED tax credit cheque typically takes 6-8 months.

Public companies and foreign-controlled companies qualify for only one-half the SR&ED Tax Credit that CCPCs qualify for, and the tax credit is only deductible from taxes otherwise owing, though you may carry this forward or back to taxes already paid in prior years. If a CCPC goes public, it should file for a "stub" fiscal period, which ends the day before going public, to maximize its SR&ED refundable tax credit.

In the case of both CCPCs and Public and foreign-controlled companies, the SR&ED Investment Tax Credit can be a significant improvement in cash flow that can be used to fund more R&D or a company's marketing and advertising expenditures.