The Scientific Research and Experimental Development Tax RefundScientific Research and Experimental Development Tax Refund is is a government incentive program to encourage Canadian businesses to develop new or improved products or processes. The federal government pays out almost two billion dollars annually under this program.
It is estimated that for every dollar paid, two dollars go unclaimed because companies are not aware of their eligibility. This encompasses both companies that have not claimed at all in the past, and companies that are not claiming as much as they are entitled to claim.
Scientific Research (whether Pure or Applied) is one of the activities the program supports: that's the "SR". But by far the larger share of the pay-outs of this program go to Experimental Development (the "ED"). If your work includes creating new products or processes, or improving your old ones, you are performing product development. The key question is whether this development is experimental in nature.
If your business is a Canadian Controlled Private Corporation and qualifies for the small business deduction, you may be eligible to receive a cash refundable investment tax credit (ITC) of 35% or more (up to 60% depending on your province) of your qualified SR&ED expenditures. You may receive it even if you have no taxable income.The Ontario Research and Development Tax Credit (ORDTC) is a non-refundable tax credit. It is available to corporations that carry out scientific research & experimental development (SR&ED) work in Ontario. The ORDTC replaced the Ontario SR&ED tax deduction for tax years ending after December 31, 2008. The ORDTC provides a 4.5 per cent tax credit based on eligible SR&ED expenses carried out in Ontario. The credit may be used to reduce corporate income tax payable. Any unused credit may be:
- carried back three years to tax years ending after December 31, 2008 or
- carried forward 20 years.
Corporations that incur eligible expenses may claim the credit. An eligible expense must be:
- on account of SR&ED carried on at a permanent establishment in Ontario and
- a qualified expense in respect of SR&ED for purposes of the federal Investment Tax Credit.
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