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Eh to Z of SR&ED: Canadian R&D Tax Credit Gets a Cozy Update

SR&ED Program, R&D Tax Credit Canada, DST Advisory Group

Eh to Z of SR&ED: Canadian R&D Tax Credit Update

The Canadian government’s recent initiatives to revisit the Scientific Research and Experimental Development (SR&ED) program signals a pivotal moment for industries engaged in research and development (R&D). With a fresh round of industry consultations underway, the Department of Finance seeks to refine the program to better serve the evolving needs of Canadian businesses. This article summarizes the latest updates to the SR&ED program, discusses the implications for stakeholders, and highlights the unique perspective and services offered by DST Advisory Group.

The SR&ED Program: An Overview of Recent Developments:

In 2024, the Canadian government announced its intention to enhance the SR&ED program, fueled by an additional allocation of $600 million over four years starting in 2025. The objective is to make the program more accessible and beneficial, particularly to a broader range of companies including non-Canadian Controlled Private Corporations (non-CCPCs). The government is now seeking feedback on potential changes, including making the tax credit refundable or increasing the credit amount available to these taxpayers.

Current State and Challenges of SR&ED: The SR&ED program is a significant propellant of R&D in Canada, having disbursed approximately $3.9 billion to over 22,000 businesses in 2021 alone. Despite these substantial contributions, R&D spending in Canada has been on a decline since 2011 and remains lower than in other comparable countries. This trend underscores the critical need for the ongoing consultations and proposed adjustments to the program.

Key Questions for Stakeholder Consultation: Finance Canada is asking stakeholders to address several key questions during this consultation phase, which will help shape the future of the SR&ED program. These include:

  • Challenges faced by small- and medium-sized public corporations in financing R&D.
  • The preference for a unified tax credit rate versus varied rates for different business sizes.
  • Definitions and regulations concerning Canadian public corporations and their relationships within corporate groups.
  • The impact of making the SR&ED credit partially or fully refundable on R&D investment decisions.
  • Expansion of the SR&ED-eligible activities to include more R&D and commercialization aspects, particularly in digital and AI fields.

DST Insights on SR&ED Developments:

DST Advisory Group offers several insights into these proposed changes:

  • Refundability and Accessibility: Making SR&ED credits refundable for non-CCPCs could democratize access to R&D incentives, encouraging more companies to invest in innovation.
  • Reallocation of Funds: The additional $600 million might be sourced from funds previously allocated to other programs, such as the Industrial Research Assistance Program (IRAP), indicating a strategic redistribution to maximize governmental R&D support.
  • Impacts on Small Businesses: Adjustments might be considered to balance the benefits between small businesses and larger corporations, possibly by modifying credit rates or refundability.

Comparative Insights and Cross-Border Efficiencies: Leveraging its extensive experience with both Canadian SR&ED and U.S. Research Tax Credit (RTC) claims, DST Advisory Group brings unique cross-border insights. This integrated approach enables a seamless R&D claim process, with specialists who understand the nuances of projects spanning both countries.

The Advantage of a Single Provider:

Using a single provider like DST for managing R&D claims in both Canada and the U.S. offers several advantages:

  • Consistency in Documentation and Reporting: Ensures uniform documentation of R&D activities, easing claim preparation and submission.
  • Efficient Use of Resources: Reduces administrative burden, allowing companies to focus more on core R&D activities rather than compliance.
  • Strategic Advisory: Offers insights on optimizing claims in both jurisdictions, potentially increasing financial benefits from tax incentives.

Conclusion: As the Canadian government continues to refine the SR&ED program, active participation in the consultation process is crucial for stakeholders. DST Advisory Group’s deep industry knowledge and cross-border experience are invaluable for companies looking to maximize their R&D tax credits. For detailed insights and tailored advice, visit the CRA’s consultation page.

Call to Action: DST Advisory Group stands ready to assist businesses navigating the complexities of the SR&ED program and its U.S. counterpart, ensuring maximum return on R&D investments. For further assistance, contact our expert team directly.