A beginner’s guide to SR&ED refunds

You are probably already aware of the government’s Scientific Research and Experimental Development (SR&ED) Program if you own a firm in Canada.

However, what you don’t know about it can astound you and prevent you from taking advantage of its tax advantages. The SR&ED program is fundamentally a tax credit scheme based on the expenditures made by your company on research and development. The program is available to all business types, including partnerships, sole proprietorships, and corporations.

A business can make use of the program’s benefits even if it has no tax liabilities because it provides a tax refund as a credit. The SR&ED Program also includes a clause that enables a business to write off the cost of particular equipment types that would otherwise need to be capitalized at tax time. You can calculate expected SR&ED refund and then claim for it.

What doesn’t qualify?

A lengthy list of things and actions are prohibited under the SR&ED Program. Naturally, this list cannot cover every scenario, which is why a business should speak with an SR&ED consultant. This expert assists in streamlining the refund procedure makes sure that all required paperwork is submitted accurately the first time, and directs a business in identifying the products that can be claimed.

It can take a while to get your money back.

Thankfully, there are forward-thinking businesses that offer lending alternatives based on the anticipated value of the SR&ED tax credit. This enables a business to reinvest that money in growing its operations.

SR&ED tax credit benefits

It can be convenient for you to use your SR&ED investment tax credit to lower the income tax owed by your firm. You will also receive a refund if the amount you owe is less than the amount of your tax credit.

On the other hand, you could decide to combine your SR&ED costs and claim them as a single deduction for up to 20 years from now. You have a three-year carry-back period for unused investment tax credits. It’s up to you to choose the approach that will work best for your company.

The creative eligible enterprises have received more than $3 billion in funding over the years. The largest incentive program in Canada, SR&ED is quite profitable for businesses that qualify.

How to calculate SR&ED tax credit

What would be your potential SR&ED tax credit payout? Your qualifying expenses and the type of business you are running will determine the answer to this inquiry.

If your company is a private corporation with Canadian control, you may be eligible for an SR&ED tax credit worth up to 35% of your $3 million in qualifying expenses. The rate will be 15% if your expenses are more than $3 million. A 15% tax credit will be offered to people, trusts, and other businesses for their allowable SR&ED expenses.

You must submit a claim to the Canada Revenue Agency if you are satisfied that at least some of your work and expenses would be eligible for the SR&ED tax credit. To substantiate the expenses you are claiming, you will need to gather paperwork, such as your tax returns and records, receipts, contracts, bank statements, and other documents.

To spend less time on your claim and more time on your next project, it would be a good idea to ask an SR&ED specialist for assistance.