Canada’s Scientific Research & Experimental Development Program (“SR&ED”) was introduced in 1985 by the Progressive Conservative Government of the day. Then finance minister – the Honourable Michael Wilson – brought it in as a replacement for the failed (and seriously flawed) SRTC program.
Initially the definition of SR&ED was found in the Regulations to the Income Tax Act (Reg. 2900). In February of 1995, it was included in the definitions section (Subsection 248(1)) of the Income Tax Act, where it is ostensibly more ‘permanent’.
“The SR&ED Program provides more than $3 billion in tax incentives to over 20,000 claims annually, making it the single largest federal program that supports business research and development (R&D) in Canada. The program is administered by the Canada Revenue Agency (CRA).
The federal government provides SR&ED tax incentives for three types of research:
- Basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view;
- Applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view; and
- Experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto.
In applying this definition in respect of a taxpayer, it includes work undertaken by or on behalf of the taxpayer regarding engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in 1), 2), or 3) above that is undertaken in Canada by or on behalf of the taxpayer.
To take advantage of tax incentives for SR&ED, a company has to be able to show that it has invested in one of these types of research. Canadian‑controlled private corporations (CCPCs) other corporations, proprietorships, partnerships, and trusts can apply for the tax incentives.” – Canada Revenue Agency
FEDERAL SR&ED PROGRAM PROVIDES IN EXCESS OF $3 BILLION ANNUALLY TO CANADIAN COMPANIES
In addition to the federal SR&ED incentives, all provinces (except Alberta & Prince Edward Island), as well as the Yukon, provide tax incentives to taxpayers that carry on research and development (R&D) activities.
PROVINCIAL SR&ED AMOUNTS TO MORE THAN $1 BILLION ANNUALLY