Scientific Research

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Scientific Research Experimental Development
Investment Tax Credit Program
What It Is and How It Works Gloria Luk
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Scientific Research and Experimental Development
(SRED) Program

• A tax incentive program to encourage RD in
  Canada.
• Largest single source of federal government
  support for industrial research and development.
• Used by over 11,000 publicly or privately owned
  Canadian companies, partnerships, individuals
  annually.
• Provides 1.5 billion/year in tax credits/cash
  refunds.

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Experimental Development (ED)

• work done to achieve technological advancement to
  create new, or improve existing, materials,
  devices, products or processes, including
  incremental improvements.

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Support Activities

• work which commensurate with the needs, and
  directly in support of the ED
• engineering, design, data collection, testing,
  mathematical analysis, computer programming,
  operations research, psychological research

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Three Criteria

• Scientific or Technological Advancement
• Scientific or Technological Uncertainty
• Scientific and Technical Content
• All three criteria must be met

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Scientific or TechnologicalAdvancement

• The work must generate information that
  advances our understanding of scientific
  relations or technologies.
• - goes beyond what is already known in standard
  practice or the public domain.

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Scientific or TechnologicalUncertainty

• Whether a given result or objective can be
  achieved, or how to achieve it, is unknown or
  cannot be determined based on generally available
  scientific or technological knowledge or
  experience.
• The uncertainty must be a technical hurdle that
  has to be resolved through experiment or
  analysis.
• - Technological uncertainty, not business
  risk

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3. Scientific Technical Content

• There must be evidence that qualified personnel
  with relevant experience in science, technology,
  or engineering have conducted a systematic
  investigation through experiment or analysis.

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Financial Benefits

• Earn investment tax credit (ITC)
• - Cash refunds and/or
• - Tax credits to be applies against taxes
  payable
• 100 deduction of the SRED capital expenditures
  in the year
• SRED expenses not deducted in the year can be
  carried forward indefinitely.

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Expenditures Allowed

• Wages
• Materials
• SRED contracts
• Machinery/equipment and
• Some overheads such as utilities, repairs and
  maintenance.

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Investment Tax Credit Rate

• 35 for Canadian Controlled Private Corporation
  (CCPC), up to the expenditure limit
• - maximum expenditure limit is 2,000,000
• 20 of the amount exceeding the expenditure limit
• 20 for everyone else.

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Canadian Controlled Private Corporation (CCPC)
An ExampleTotal SRED Expenditure is 3 million
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Services Offered

• First time claimant service
• Pre-claim project review
• Account executive

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1. First-time Claimant Service

• Resources available
• - www.cra-arc.gc.ca/taxcredit/sred/menu-e.html
• - information kit
• - public seminar
• Toll free line 1-866-317-0473. We put you in
  touch with someone who can answer your questions
  regarding the completion of your first claim.

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2. PCPR - Pre-Claim Project Review

• An advisory service rendered before claim is
  filed.
• Provides an up-front discussion and a preliminary
  opinion on the eligibility of the RD work for
  the SRED Program.
• Must have a defined RD plan and completed some
  background work.

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3. Account Executive Service

• Objectives
• single contact person
• provide continuity
• better understanding of clients business

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The BC Program

• 10 Provincial Tax Credit.
• For corporations only.
• Must have permanent establishment in BC
• Work must be done in BC
• Refundable for CCPCs up to Expenditure Limit
• Applied to taxes after other Provincial Tax
  Credits
• Credit Earned will be Government Assistance for
  Federal ITC unless renounced