R&D Tax Credits Explained

What Are R&D Tax Credits

R&D tax credits can reduce taxes payable or are fully refundable monies earned when the claim is approved by the Canada Revenue Agency (CRA). The credit is earned on eligible expenditures related to the development of new or improved products or processes.  In most provinces, there is also a R&D tax credit that is available to most companies as well.  The combined Federal and Provincial R&D tax credit can amount to as much as 50% of eligible costs.

The Scientific Research & Experimental Development (SR&ED) program is a CRA incentive designed to encourage innovation and increased spending on R&D activities by companies operating in the Canada. Eligible work must demonstrate that there is a technological advancement sought and that there is technological uncertainty that must be overcome in order to achieve that advancement.  The program was first introduced in the 1960s and has evolved in one form or another over those years.  Currently, there is roughly $4 billion spent annually by the program on 18,000 Canadian businesses.

Who Can Qualify For R&D Tax Credits

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What is the criteria for eligibility?

The two key criteria in determining whether a company is eligible for R&D tax credits are ‘technological advancement’ and ‘technological uncertainty’. Essentially, what this means is that there must be some obstables that might prevent you from reaching your advancement.  Interestly enough, if there were any failures along the way, that would suggest that the solution wasn’t obvious and requires experimental development to resolve.

What expenditure is allowable?

If your project meets the eligibility criteria, then an R&D tax credit can be claimed based on expenses related to the experimental development of the project.  This can include employee costs, some contractor costs and consumable items.

Are we eligible for R&D tax credits?

Many business owners and finance departments will wonder ‘are we eligible for R&D tax credits?’ The answer is often yes. If your company is taking a risk by innovating, improving or developing a new or improved product or process, then it may qualify for R&D tax credits. Ask yourself the eligibility question or let us ask it. We can often determine whenter work is eligible within a few short minutes of a conversation with the technical employees who performed the work. We help companies determine eligibility, free of charge, whether you engage us or not. Call us now, we want to help you.