Staying innovative and advancing within your field is essential to competing successfully in the world of business. Especially for small businesses, it’s all about those original ideas that can give you an edge on a global scale. To help, the Canadian government developed the Scientific Research & Experimental Development (SR&ED) tax credit program to help empower small businesses nationwide.

How Your Business Can Benefit

The specific benefits of the SR&ED tax credit vary depending on your business and industry. But almost any small business, including those working outside stereotypical research fields, can benefit from it. Here are the two types of tax incentives available:

1. Income tax deduction – If your business engages in qualifying research and development, you can obtain a deduction for expenditures in the year they’re incurred. It’s possible to get this deduction even if the expenses are capital expenses. 
2. Investment Tax Credit (ITC) – ITCs can reduce your income taxes, significantly lowering the effective cost of your qualifying research and development expenses. They can be obtained as cash refunds, meaning you can get money back, even if the amount of credits you have exceeds how much you owe in income tax. Plus, the ITC rate is very generous for taxpayers.

Obtaining a tax incentive significantly reduces the actual cost of performing certain types of research and development, improving the return on your research investment and giving you the freedom to be more creative and innovative.

How Does it Work?

If your business expenses are eligible for SR&ED, you can benefit from these tax incentives in two ways:

1. Businesses can pool SR&ED expenditures and deduct them against their income – You can also carry over any deductions you don’t need. So, you can choose between getting an immediate tax credit or carrying it over to later years. Your company can better budget its funds, lowering your overall research and development costs and the payoff you need to get a good return on your investment dollars.
2. Businesses can use the SR&ED ITC to reduce income tax payable – The Canada Revenue Agency (CRA) may sometimes even refund your remaining ITC. ITCs are at least 15 percent and can be up to 35 percent of your qualified expenses. Eligibility for this enhanced credit depends upon your previous year’s tax liability, among other factors.

Learn More

For more information on SR&ED tax incentives and to see if you qualify, take a look at the CRA’s website and eligibility guidelines.

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