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SR&ED Tax Credits: the Numbers

Sometimes it’s good to revisit the basics of the SR&ED program so that we don’t get so close to the tree that we can’t see the forest. My following comments are made in the context of a corporation.

The purpose of the SR&ED legislation is to induce technological advancement within Canadian industry. This requires research and experimental development. The SR&ED program encourages that activity through offering investment tax credits that are based on the quantum of eligible expenditures. In most cases these investment tax credits are refundable, which means that if a claimant’s investment tax credit exceeds their income taxes owing, the excess will be a cash payment to the claimant.

The program is generally administered by CRA since it is legislated via The Income Tax Act of Canada, and the rate of credit is 15% or 35% (of eligible expenditures) for the Federal portion and varying amounts for the provincial portion. The rates vary from province to province.  The 35% is for the first $3 million per year for small business corporations. That $3,000,000 is eroded by $10 for each dollar that the previous year’s taxable income exceeds $500,000.  Expenditures beyond the $3,000,000 (or the lower eroded amount if the previous year’s taxable income exceeded $500,000) earn only 15%. And if the applicant is a foreign corporation, the rate is 15%. The 15% credits are not refundable.

Added to this amount is the relevant provincial credit. In BC it is 10% of the first $3,000,000 of annual eligible expenses.  In Alberta the cap is $4 million. There are other rules in each of these provinces, and in the others as well, but I am just trying to give a basic sense of the program.

In the next post in this series, I’ll discuss what kind of work qualifies for this program.

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