Under the SR&ED program, you may be eligible for tax credits or cash refunds if you are developing new technology, enhancing existing technology, products, or processes. Canada’s SR&ED program is one of the more profitable tax-incentive programs for research and development enterprises. You might be wondering what is the formula for calculating the SR&ED tax credit? The value of qualifying work you did on a project in a given tax year is used to calculate the SR&ED tax credit. You can also use the SR&ED calculator to calculate the tax credit.
How are SR&ED Tax Credits calculated?
The first thing is to assess whether or not your business is a private corporation. Depending on the answer, the amount you receive for your SR&ED claim can vary dramatically.
Non-Canadian-controlled private corporations (who can receive a non-refundable credit), individuals (proprietorships), and trusts all receive a lower SR&ED refund from the CRA than Canadian-controlled private corporations (CCPCs). Partnerships are not eligible for the SR&ED program since they are not taxpayers, although individual members can receive a tax credit.
- Federal SR&ED offers CCPCs a 35 percent reimbursement on their SR&ED tax credit qualifying spend.
- For qualifying SR&ED tax credit spend, all non-CCPCs receive a 15% non-refundable tax credit.
What isn’t taken into account by the SR&ED tax calculator?
The SR&ED tax credit calculator is a useful tool, but it can’t replace expert consultant guidance or take into account all of the aspects that go into maximizing your SR&ED tax credit. The SR&ED tax calculator has a few limits or assumptions for calculating your SR&ED tax credits:
- Employees who are ‘specified’ are treated the same as those who aren’t.
- Even in provinces where this incentive is still available, capital expenditures are not eligible.
- Additional top-ups based on contracts with specific research institutions are excluded.
- Spending limitations and the company’s size aren’t taken into account.
Benefits of SR&ED
Qualified Canadian Controlled Private Corporations (CCPCs) can get up to 35 percent of eligible expenses refunded in the creation of new or upgraded products or processes. On eligible expenditures, foreign-owned or public firms are eligible for a 15% tax credit (which was reduced from 20% to 15% in 2014).
On eligible SR&ED expenditures, the majority of Canadian provinces give additional tax credits. SR&ED claimants may be eligible for additional provincial SR&ED tax benefits, depending on their province.
The money you get from the SR&ED program can be put back into your company in the form of new equipment, new hires, expanding your facilities, taking on more difficult projects, or paying off debts.