The Scientific Research and Experimental Development is a Canadian program that offers generous tax incentives for individuals and corporations to do specific research and development. It encourages Canadian businesses in all sectors to conduct research and development in Canada, providing over 3 billion dollars in incentives to over 20,000 claimants annually.
It was began in the eighties and the incentives are not a grant as you are entitled to it under the Canadian Income Tax Act. The offering of refundable tax credit needs to meet three criteria for approval;
2) Scientific uncertainty.
3) Scientific investigation.
Upon qualification, tax liability will be lowered and a refund given and because it is refundable tax credit, you can receive refund even if you do not owe taxes.
To qualify in a partnership, you must have your own individual tax return using a portion of the partnerships eligible expenses. The kind of research and development approved for tax refund by the Canadian Revenue Agency is basic and applied research. Data collection, testing, surveys, engineering, design, all fall here. You can be advancing science as well as have a practical application.
Materials, labor cost, capital and other related expenses to the research or development is what merits refund. Things such as style change, promotions, market research before the start of the project and social science research project are self-incurred expenses. They do not warrant refunds. As well, a project does not have to be successful to receive tax incentive but the efforts therein should be evidenced as legitimate, scientific, and research-based.
Any assistance for qualifying expenditures from the government should be deducted so as to not be included in the refund. It is important to consult with your accountant on this and avoid lawsuits.
Corporations usually have eighteen months from the end of the tax year to claim expenses while individuals have seventeen and-a-half months. To apply, one needs to fill out Form T661 ( Scientific Research and Experimental Development Expenditures Claim) along with either, Form T2038 ( IND) ( Investment Tax Credit – Individuals) or, Form T2SCH31 (Investment Tax Credit – Corporations). The Canada Revenue Agency may want to verify your work with supporting financial and technical documents such as minutes of project meetings so it best to have them ready.
As well, the agency looks at one’s key individuals to determine if a refund is merited. Key individuals in research and development have;
1)Correct job title.
2) Education in the specific field.
3)Experience in the relevant field.
Other people in the project but not key individuals are left to handle administrative or financial work since, they do not have the relevant education in the field or the years of experience required.
The Canadian Revenue Agency has since 2016 ordered a pre-approval process so that credit can be included in financial plans without having to wait for formal approval. They are also working to ensure quality and consistency in the service they provide which in turn has greatly benefited Canada and her people.