How can Research and Development Save Your Company Money?

You can save money on the amount of federal tax your company has to pay at the end of the year when you engage in research and development activities. You do have to check out the research and development guidelines before you get started to ensure that your research and development project meets the eligibility requirements for tax incentives from the federal government. Usually the research and development projects must be scientifically based and must meet certain specifications. These specifications for research and development deductions are spelled out in the Income Tax Act.

Scientific research and development (SR & D) must be carried out in a field of science or technology. The research and development project must consist of basic research, applied research and experimental development. There are specific criteria that the research and development project must meet. Your company’s proposal for research and development must seek some scientific or technological advancement. In order to qualify for the basic research needed for research and development, those involved must have some degree of uncertainty about the outcome. The project must have some scientific or technological content, involve a systematic investigation and experimentation and the outcome of the research and development has to be carried out by qualified personnel. Finally, every step of the research and development project must be documented.

The tax credits for companies engaging in research and development can include a full write-off of all the expenditures related to the project. Companies can take the full amount of this tax credit and apply it to the amount of federal tax owed either in one year or spread it out over a three-year period. For certain Canadian owned companies involved in research and development, they can qualify for a 35% tax investment credit. These companies also have thirteen years in which to apply this tax credit for research and development.

Each province in Canada has tax incentives for research and development projects. In British Columbia, there is a 10% tax credit for qualifying research and development projects. Ontario also provides a refundable 10% tax credit and in Saskatchewan, companies can get a 15% non-refundable tax credit on the expenditures they incur in research and development projects. Quebec has the most generous of all tax incentives for research and development projects with a refundable tax credit of between 20% and 40% for the first two million dollars spend in wages and a 40% refundable tax credit on all expenditures for research and development.