You might have heard about a Canadian tax incentive program, SRED, and you might even have been told that SRED stands for Scientific Research & Experimental Development.
You think this sounds interesting, but you might have a few questions. How do SRED credits work? Does my work qualify for the SRED tax incentive, and how can I file and submit my claim?
You may have some questions about how do SRED credits work. Here is a SRED FAQ for all the frequently asked questions:
1. What is the purpose of SRED credits?
Scientific Research & Experimental Development is a program offered by the government of Canada. Its purpose is to support experimental development and scientific research within the country by encouraging and rewarding individuals, small and medium-sized businesses, startups, and large corporations for their work in these fields.
This reward will come either from a cash refund or an investment tax credit.
To benefit from a SRED tax credit, individuals and businesses must file a claim, which the Canada Revenue Agency will carefully review. If you are hoping to get some money, you must understand the program’s strict requirements and ensure you qualify.
2. Do I qualify for SRED tax incentives?
To qualify, you have to be conducting some work in experimental development, applied research, or basic research.
- Experimental development is conducted to achieve technological advancements or create or improve materials, devices, products, or processes.
- Applied research aims to advance scientific knowledge through a specific and practical application.
- Basic research is research which advances scientific knowledge but without having a practical application in mind.
But just because you don’t have scientists in lab coats on your team doesn’t mean you should forget SRED credits. If some of your work concerns coding, computer programming, mathematical analysis, testing, data collection, or physical engineering, you might qualify to claim some tax incentives.
3. Which expenses can be claimed under the SRED tax incentive?
Concretely, suppose your work qualifies for the SRED tax incentive. In that case, you can claim different expenses, including the salary and wages of your employees, contract expenditures, the cost of materials consumed or transformed, and overhead expenditures.
Perhaps you will find that while most of your work is not directly related to experimental development, applied research, or basic research, some parts of your work are eligible, and some of your expenses can be claimed.
If you are unsure, don’t hesitate to get in touch with an SRED consultant who will be able to confirm which of your expenses qualify for the program.
4. How much money could I receive from SRED?
If you run a Canadian-controlled Private Corporation, you should be able to get more money than if you are another type of private corporation, a trust, or an individual.
If your claim is accepted, you should get a refund of up to 35% of your qualifying expenses, up to a maximum threshold of $3 million. If you are not a Canadian-controlled private corporation, the rate will likely be 15%.
But the amount of money you can receive also depends on which Canadian province you are conducting your work in.
5. How can I file my SRED claim?
You should file your SRED claim simultaneously with your income tax return. Your SRED claim will be completed on a separate form.
You must include documentation detailing your eligible expenses and a technical description of your qualifying work. Since it will take some time for your claim to be reviewed, you should consider seeking an SRED consultant’s help to ensure you are doing it right.
The Canada Revenue Agency offers different tools and services to help you claim your SRED credits, so it’s worth looking at what they offer, especially if this is your first time as a claimant.
6. Is there a deadline to file a SRED claim?
You could file your claim at the same time as your tax returns, which are due no later than six months after the end of the fiscal year. However, you have 18 months after the end of the fiscal year to file your SRED claim for the expenses incurred during that year.
7. What happens after I submit my SRED claim?
After you submit your claim, the Canada Revenue Agency will screen it to ensure it’s complete and ready to be processed. If your claim is not considered ready to be processed, it will require a review.
The Canada Revenue Agency could check whether the expenses you are claiming are legitimate, or it could have some questions for you regarding the documents you have provided with your claim.
You will receive a payment or a tax credit when your claim is approved. If ever your claim is rejected, you will have 90 days to file an objection to trying to prove that your claim is valid and should be approved.