The Canada Revenue Agency has published new Guidelines on the Eligibility of Work for Scientific Research and Experimental Development (SR&ED) Tax Incentives. The new guidelines, dated 13 August 2021, replace the Eligibility of Work for SR&ED Investment Tax Credits Policy to provide clearer and simpler information about how SR&ED work is defined under the Income Tax Act, which is meant to make it easier for businesses to assess whether their work is eligible for SR&ED tax incentives at the outset, before they apply. The new guidelines feature simplified explanations of program requirements, clear breakdowns of what constitutes eligible work, and links to further guidance on what can be claimed and how to support a claim.
Depending on the nature of the taxpayer, tax incentives under the SR&ED program include an income tax deduction, an investment tax credit (ITC), and in certain circumstances, a refund. A Canadian-controlled private corporation (CCPC) can generally earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures of CAD 3 million and can also earn a non-refundable ITC at the basic rate of 15% on amounts over CAD 3 million. However, CCPCs that also meet the definition of a qualifying corporation can earn a refundable ITC at the basic rate of 15% on amounts over CAD 3 million, and 40% of the ITC can be refunded. Other corporations can earn a non-refundable ITC at the basic rate of 15% on qualified SR&ED expenditures.