A Look at SR&ED in 2019
The Scientific Research and Experimental Development (SR&ED) Program is one of the most generous tax incentives offered to businesses in Canada. This largest tax incentive program is open to companies of all sizes. This tax credit program has been in existence since 1985. And this program has been gone through changes to the tax law since then. The Scientific Research and Experimental program is intended to promote competitiveness, increase growth, and create highly skilled R&D jobs.
In order to qualify for these tax credits, R&D expenditures must be related to:
Basic Research- To advance scientific knowledge
Applied Research- To advance scientific knowledge with practical applications
Experimental Development- To achieve technological advancement
Common Industry Challenges Related to SR&ED
- Majority of people don’t think they do research & development (R&D)
- The tax incentive program is complicated, and criteria is constantly becoming hard.
- Some are just claiming apparent R&D activities and are not claiming activities such as processes, continuous improvement and internal IT projects.
- Previously gone through a bad audit.
- Some are paid for R&D by their clients and think that they can’t claim.
- Lack of time, resources and expertise to get a claim.
A Surprising and Significant Change in 2019
An important announcement has been made related to SR&ED for the use of taxable income in determining CCPC’s expenditure limit. Due to this, small CCPCs with the taxable amount of up to $10 will get access to the enhanced SR&ED tax credit.
Under this program, Canadian-controlled private corporations can acquire refundable tax credit of 35% on the first $3,000,000 of qualifying expenditures annually. Other corporations can acquire a non-refundable tax credit at the rate of 15 percent on qualified expenditures annually. Individuals and trusts can receive a refundable ITC at the rate of 15% on qualified SR&ED expenditures every year. This measure was applied to taxation years that end after March 18, 2019.
Some corporate tax measures include supporting Canadian journalism, denying a mutual fund trust a deduction for the part of an allocation made to a unitholder on a reclamation that is greater than the capital gain that would have been comprehended by the unitholder on the redemption and rules that will not allow derivative transactions to convert income that would be treated as taxable income into capital gain.
This significant change will offer a more predictable phase-out of the enhanced SR&ED tax credit rate, which will support growing small and medium-sized firms more effectively. Due to this, only the taxable capital phase-out will be applicable going forward. The changes in the SR&ED program in 2019 have focused on reducing the amount disbursed through this tax credit program. In order to support innovative business, the Canadian Government proposes to eliminate the income threshold for accessing the enhanced tax credit. This big change will also help to make Canada a leader in science and innovation.
Scientific Research and Experimental Program may be an important part of your business success. We, at Vancouver R&D Services Inc., are here to help you increase the potential of this tax credit. Talk to one of our SR&ED professionals today.