S.R.E.D. Refunds

The Scientific Research and Experimental Development Tax Refund

Scientific 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.

Qualification

If your business is a Canadian Controlled Private Corporation and qualifies for the small business deduction (taxable income in 2005 of less than $300,000; 2004 – less than $250,000 and 2003 – less than $225, 000.00) 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.

If you have developed a new product, process, tool, technical procedure or just improved the existing ones, you might well qualify. Also, if you have investigated new materials or looked for new ways to do things cheaper, faster or better, there is a very high probability that you will qualify.

It is important to note that the refund/tax credit is not dependent on whether you were successful in the experiment or not, in fact failure demonstrates that it was an experiment.