SRED Credits

Brief description

Scientific Research and Experimental Development (SRED) credits, administered by Canada Revenue Agency (CRA), allow companies to claim tax credits and refunds for eligible expenditures related to Research and Development (R&D) efforts. SRED credits are an important part of Canada’s innovation strategy, designed to encourage businesses to take part in R&D activities.

Who is eligible to apply?

Different types of entities can apply for SRED credits, including:

• Sole proprietorships: individual entrepreneurs engaged in R&D activities.
• Corporations: both private and public companies.
• Partnerships: joint ventures that engage in eligible R&D projects.

What requirements need to be met?

To be eligible for SRED credits, the activities must be conducted in Canada and meet both of the following requirements:

• The work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement and
• The work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.*

Eligible types of work

1. Basic Research: Fundamental research aimed at gaining new scientific knowledge without immediate commercial objectives.
2. Applied Research: Investigating a scientific principle or technology with the intention of developing new or improved products.
3. Experimental Development: This includes the development of prototypes or pilot projects to test new technologies.
4. Support work: Certain support work may be eligible if it directly supports one of the above (i.e., basic research, applied research or experimental development). Categories of eligible support work include:
   • Engineering
   • Design
   • Operations research
   • Mathematical analysis
   • Computer programming
   • Data collection
   • Testing
   • Psychological research

Work that is not eligible

A few examples of excluded work activities are as follows:

• Sales promotion or market research
• Routine testing of materials, devices, products or processes or quality control
• Routine data collection
• Style changes

Other ineligible activities include:

• Training
• Hiring experts (employees or consultants) to apply knowledge they already have

Self-Assessment Tool

CRA has developed a Scientific Research and Development Self-Assessment and Learning Tool (SALT). The tool helps you understand if your work could be eligible for a SRED claim and estimates the SRED Investment Tax Credit (ITCs) that may be available when you file your income tax return for a given year. After responding to various questions about your SRED project the tool provides an Eligibility and ITC summary, which is broken by

• Provincial ITC estimate
• Federal ITC estimate

How to prepare your claim?

Preparing a SRED claim may be a daunting task but if you follow these basic steps, the claim preparation becomes more manageable:

• Identify your eligible work and group it into a project
• Write a description of the SRED work (be sure to explain the advancement)
• Compute your SRED expenditures
• Claim a deduction and earn ITC

A good habit to develop is to submit your SRED claim together with your income tax return for the given year. All financial and technical documentation that supports your claim should be retained.

Reporting deadlines

The filing date for your SRED claim depends on your income tax filing due date. Furthermore, your income tax filing due date depends on what type of taxpayer you are (individual, corporation, or partnership).

An individual who is a sole proprietor and has engaged in SRED activities during 2024 would have the following reporting deadlines:

• Income tax filing due date for 2024 tax return: June 15, 2025
• SRED reporting deadline for 2024 SRED claim: 12 months later (i.e., June 15, 2026)

A corporation, with a Dec 31 tax year end, that has engaged in SRED activities during 2024 would have the following reporting deadlines:

• Income tax filing due date for 2024 tax return: June 30, 2025
• SRED reporting deadline for 2024 SRED claim: 12 months later (i.e., June 30, 2026)

A partnership, with a Dec 31 tax year end, that has engaged in SRED activities during 2024 would have the following reporting deadlines:

• Income tax filing due date for 2024 tax return: March 31, 2025
• SRED reporting deadline for 2024 SRED claim: 12 months later (i.e., March 31, 2026)

However, we recommend you file your SRED claim early, together with your income tax return. Whether you currently have ongoing SRED activities and require assistance with the preparation of your SRED claim or in the future you may engage in SRED activities our experts can guide you. Kindly reach out to our team of professionals for a consultation.

* t4088-20e Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661