If your home business has invested in innovation and funded an R&D project within the past year, you may be eligible for the SR&ED program. The Scientific Research & Experimental Development program annually funds billions of dollars. In the form of tax incentives, organizations that invest in R&D can procure unlimited funding to cover all sorts of expenses tied to research projects.
The beauty of SR&ED is that it applies to a variety of businesses in different sectors, from corporations to small companies. Here is how to determine if your home business is eligible for SR&ED.
Was Your SR&ED Project Conducted in Canada?
SR&ED funding only applies to components of an R&D project completed in Canada. SR&ED does not fund foreign projects run by Canadian companies. It strictly applies to research done within Canada’s borders.
Who Did the Work on Your SR&ED Project?
SR&ED funding covers the work of Canadian residents who are employees, in addition to foreign workers who are in Canada on a visa and/or those with permanent residency status. As long as taxes are paid in Canada, these employees’ salaries or wages are covered under SR&ED funding.
What Is the Purpose of Your SR&ED Project?
The SR&ED tax credit is given to projects whose work is conducted either for scientific advancement or to achieve technological advancement. It does not fund market research or R&D outside of these parameters.
Develop a Product vs Adopt a Product
If your project is about how to adopt or apply a new innovative technology, this does not qualify as SR&ED. R&D funding is about developing a product, process, or material. It doesn’t apply to any initiatives or components relating to how innovation is to be applied or adopted.
What Problem Is Your SR&ED Project Solving?
SR&ED is all about building scientific or technological knowledge. Your project must be solving a problem of some kind and one that is not tied to social sciences or business. If your project is unrelated to finding new knowledge, you cannot justify it under the SR&ED eligibility criteria.
What Type of Research Is Your SR&ED Project?
You must define your R&D project under one of the following three types of research to qualify.
Basic research
Basic research tries to advance scientific knowledge with no practical application in mind.
Applied research
Applied research tries to advance scientific knowledge with a specific and practical application in mind.
Experimental development
Experimental development is an attempt to achieve technological advancement by experiment. Experimental development is the category where the majority of SR&ED claims fall.
What Type of Work Is Your SR&ED Project?
SR&ED work can involve engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research.
If your project has utilized any of these R&D methods, your business is likely eligible to apply. Here is a short list of excluded work that the SR&ED program will not fund.