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The Scientific Research & Experimental Design (SR&ED) tax incentive, created by the Canadian government, aims to encourage businesses of all sizes to participate in scientific research and development.

The initiative is led by the Canada Revenue Agency and provides over $3 billion dollars in tax incentives annually. Structured as a tax-deductible, SR&ED qualified work is defined by the Income Tax Act as, “systematic investigation or search that is carried out in the field of science or technology by a means of analysis.” 

What is considered an eligible SR&ED project?

Eligibility of SR&ED projects is contingent on how and why they are carried out.

SR&ED projects are required to follow a systematic investigation which refers to the rationale and subsequent execution for the project. In other words, SR&ED projects must have the following:

  1. A defined problem
  2. A hypothesis as to how to resolve the problem
  3. Experimental or developmental plan to answer this hypothesis
  4. A conclusion based on the results

The other critical aspect of all SR&ED projects is its overarching goal to improve the advancement of scientific or technological development.

Do you qualify for SR&ED funding?

The types of research and development work covered under SR&ED is as follows:

  1. Basic research: advances scientific knowledge but without a specific downstream application
  2. Applied research: advances scientific knowledge and has the potential for downstream applications
  3. Experimental development: advances technological development to either create new or improve current products or processes

Typically, SR&ED appropriate research and development fall into fields such as but is not limited to pharmaceuticals, biotechnology, engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.

Expenditures that can be claimed under SR&ED includes salaries, materials, SR&ED contracts, overhead, and third-party payment.

While SR&ED projects are under a large umbrella of industries, what is explicitly excluded from being considered as appropriate for SR&ED funding includes:

  • market research and sales promotion
  • quality control and routine testing
  • humanities/social sciences research
  • prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
  • commercial production of new or improved material, device or product or commercial use of new or improved process
  • routine data collection
  • style changes

Want to know more about SR&ED? Wonder if your business is eligible for a SR&ED tax deduction? Contact us at Felix SR&ED (info @ felixsred.ca) for a free consultation and increasing your success rate for acquiring SR&ED!