Everything You Should Know About The SR&ED Tax Credit

The SR&ED Program, administered by the Canada Revenue Agency (CRA), annually allocates over $3 billion in tax incentives to over 20,000 claimants, solidifying its position as Canada’s most substantial federal program supporting business research and development (R&D). Ensure you’re navigating this opportunity effectively.

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    Canada’s SR&ED Program: Driving Innovation Since 1944

    Introduced in 1944, the Scientific Research & Experimental Development (SR&ED) program remains at the forefront of Canada’s innovation strategy. It’s designed to foster growth in R&D sectors by:

    • Paid

      Tax Incentives

      Offering companies substantial tax reliefs, refunds, or credits based on their R&D expenditure.

    • Query_Stats

      Industry Support

      Promoting Canadian industries to explore new technological territories.

    • Trending_Up

      Economic Stimulus

      Boosting the country’s GDP by encouraging local innovations, which potentially leads to new job opportunities and technological advancements.

    What R&D Activities Could Qualify For The SR&ED Tax Credit?

    1. Innovation: Developing new methods or original products that weren’t previously available.
    2. Improvement: Elevating the performance, efficiency, or reliability of existing products or processes.
    3. Exploration: Engaging in activities that resolve scientific or technological uncertainties.

    Get The SR&ED Claim You Need Tailored To Your Industry Needs

    Almost every Industry has the potential to tap into the benefits of the SR&ED program. Common industries include:

    SR&ED Tax Scenario
    Aerospace

    This company is a leader in the innovation and development of advanced interconnect products. They focuses on creating robust, reliable, high-quality connectors, and associated products to meet the stringent demands of diverse industries.

    • Wages $90,736
    • Proxy Amount $49,828
    • Sub-Contractors $8,960
    • Consummed Materials $2,237
    • Grants To Be Deducted (If Applicable) ($7,321)
    • Total Allowable SR&ED Expenditures $144,441

    SR&ED Tax Scenario
    Textile

    This company is renowned for pioneering advanced heated apparel technology, specifically designed to combat extreme cold climates.

    • Wages $217,264
    • Proxy Amount $115,482
    • Sub-Contractors $141,720
    • Consummed Materials $12,769
    • Grants To Be Deducted (If Applicable) ($84,252)
    • Total Allowable SR&ED Expenditures $402,983

    SR&ED Tax Scenario
    Manufacturing

    The company has developed innovative thermoreactor solutions to assist clients by delivering meticulously crafted equipment, optimized for efficiency, reliability, and performance.

    • Wages $112,694
    • Proxy Amount $61,917
    • Sub-Contractors $0
    • Consummed Materials $6,742
    • Grants To Be Deducted (If Applicable) ($19,305)
    • Total Allowable SR&ED Expenditures $162,047

    SR&ED Tax Scenario
    Cannabis

    The company has developed innovative solutions and meticulous craftsmanship to ensure optimum quality and taste. To provide clients with greens that are healthy.

    • Wages $61 906
    • Proxy Amount $34, 048
    • Sub-Contractors $0
    • Consummed Materials $0
    • Grants To Be Deducted (If Applicable) ($3 572)
    • Total Allowable SR&ED Expenditures $92 382

    How Can SR&ED Tax Credit Leverage Your Business?

    • monetization_on

      Boosting Your Cash Flow

      Secure significant financial returns, providing more room for further investment.

    • lightbulb

      Fueling Your Innovation

      Dedicate more resources to R&D, leading to market disruptions.

    • trending_up

      Accelerating Your Business Growth

      Attract investors with substantial R&D focus and potential returns.

    • chess

      Increasing Your Competitiveness

      Use the credits to reduce prices, increase marketing activities, or enhance product quality.

    SR&ED Expenditure:
    The Two Methods

    When claiming for SR&ED, there are two predominant methods to account for the expenditures involved:

    Traditional Method

    Incremental overhead expenses are calculated and added in the pool of eligible expenses.

    Special Note: Costs related to software, such as licenses or development tools, can predominantly be claimed under this method.

    Proxy Method

    Calculates 55% of direct SR&ED salaries as incremental overhead expenses.

    Restrictions: This method prohibits the claim of capital and lease expenditures.

    FAQs

    All you need to know about SR&ED Tax Credit

    Can’t find the answer you’re after? Please contact our team

    Is there a difference in how CCPCs and Non-CCPCs receive returns on SR&ED expenditures? keyboard_arrow_down keyboard_arrow_up

    Yes, there are substantial differences in how Canadian-Controlled Private Corporations (CCPCs) and Non-CCPCs receive returns on their Scientific Research & Experimental Development (SR&ED) expenditures.
    CCPCs qualify for up to 35% Federal return on SR&ED-related expenditures based on taxable capital of the last fiscal year of the company, received as a direct, one-time cash refund.
    Non-CCPCs, on the other hand, obtain a 15% Federal return on their SR&ED expenditures. Unlike CCPCs, this return is not in cash but in the form of a credit refund. This credit can only be utilized against corporate taxes owed and can be carried forward for up to 20 years or applied retroactively for up to 3 years to recover taxes paid.

    Is your Research and Development project qualified ? keyboard_arrow_down keyboard_arrow_up

    Why and How SR&ED is conducted are two requirements to be met.

    WHY?

    For the advancement of scientific knowledge or to  achieve technological advancement:

    •Generation or discovery of knowledge that advances the
    understanding of technology.
    •This is conceptual knowledge (theories, prediction  models,…), not factual knowledge (data or measurements).
    New knowledge is needed when it is unknown whether a result or objective can be achieved, due to an  insufficiency in the available scientific or technological  knowledge.
    •The recognition of that unknown is the starting point of  the SR&ED work, and the advancement the targeted  outcome.
    •If the uncertainty is not addressed or is circumvented with  a workaround, the work is not eligible.

    HOW?

    Systematic investigation or search by means of experiment or  analysis:

    •Different than a systematic approach to carrying out work.
    •Eligible approach consists in generating an idea consistent with known  facts serving as a starting point for further investigation. The idea can  be a possible solution to a problem, a proposed method or an approach (hypothesis).
    •It involves testing the idea by means of experiment or analysis. The idea  can evolve as a result of the testing.
    •Must draw logical conclusions based on the results of the experiment.
    •Evidence must be kept that is generated as the work progress.

    How should I prepare my SR&ED Claim? keyboard_arrow_down keyboard_arrow_up

    Review your hypothesis and uncertenties together with your team. Assess what was known and what was unknown, including tools and methodologies, at the inception of your project. Discuss the claim with your SR&ED advisor. You can choose Leyton as your SR&ED advisor, our consultants are available to attend meetings, offering valuable insights and additional resources to support your claim.

    Income tax is being reviewed by the Canada Revenue Agency (CRA), what’s next? keyboard_arrow_down keyboard_arrow_up

    A review is not a tax audit, it is typically just a standard procedure to verify the accuracy of the details submitted on your return.
    Our SR&ED consultants are here to help! Promptly responding and supplying the requested information is crucial. It enables the CRA to expedite the review of your file effectively and efficiently.

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    How can Leyton assist you ? keyboard_arrow_down keyboard_arrow_up

    At Leyton, we leverage our profound understanding of the SR&ED program to provide comprehensive services across all Canadian regions:
    SR&ED Claim Optimization: We identify eligible SR&ED activities specific to your operations, aiming to maximize your claim while ensuring full compliance with CRA standards. Our team collaborates with yours to gather essential documentation, develop project descriptions, and structure your claim effectively.
    SR&ED Documentation Enhancement: We assist clients in implementing enhanced methodologies to meet current and future technical and documentation requirements, ensuring seamless claim submissions.
    SR&ED Claim Advocacy: With our in-depth knowledge of program guidelines, we adeptly negotiate and resolve disputes with CRA on behalf of our clients, striving to achieve the best possible outcomes.

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    How does Leyton for Me revolutionize the SR&ED claim process for businesses? keyboard_arrow_down keyboard_arrow_up

    At Leyton, Leyton for Me is our cutting-edge platform, innovatively crafted by our in-house Tech Lab, designed to streamline the SR&ED (Scientific Research & Experimental Development) claim process. With “Leyton for Me”, you gain real-time insights into your R&D projects, ensuring you’re always in the loop. Collaboration with our consultants has never been easier, and we’ve put paramount importance on data security with top-tier encryption protocols. Our intuitive history feature lets you revisit any interaction, ensuring complete transparency. Should you have any questions or face challenges, rest assured, our dedicated team is always ready to assist. Our commitment at Leyton is clear: to revolutionize the R&D claims process, making it efficient, secure, and user-centric.

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    What support work is eligible ? keyboard_arrow_down keyboard_arrow_up

    Eligible support work for the SR&ED Tax Credit Program includes:

    Engineering
    ● Design
    ● Operations Research
    ● Mathematical Analysis
    ● Computer Programming
    ● Data Collection
    ● Experiment
    ● Psychological Research


    Regardless of your location, be it Montreal, Toronto, Calgary, or Vancouver, Leyton’s specialized consultants are dedicated to ensuring that every eligible aspect of your innovative endeavors receives the support it deserves. Whether you need assistance with personal income tax, supporting documents, filing a claim, managing your tax return, or handling your bank account with tax owed, we have your specific needs covered.

    Get your SR&ED claim estimate today!

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