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R&D Tax Credit Program
Provincial Incentives
Federal Incentives
Government Incentives

The Federal "SR&ED" Tax Incentives and Their Administration

The federal government provides income tax incentives, in the form of income tax deductions and investment tax credits, to businesses that perform scientific research and experimental development (SR&ED) in Canada. The income tax definition of SR&ED is consistent with the internationally accepted definition used by the Organization for Economic Co-operation and Development (OECD).⁶ Federal income tax assistance for SR&ED is a key component of the federal government’s efforts to support and foster advancements in science and technology. ⁷
All provincial governments also support research and development through income tax deductions and six provinces (Manitoba, Newfoundland, New Brunswick, Nova Scotia, Ontario and Quebec) offer various types of additional income tax incentives for research and development. The tax support for research and development provided by the federal and provincial governments is widely recognized as among the most favourable in the world. ⁸
Recent amendments: British Columbia
This document reviews the current system of federal income tax incentives for SR&ED and the administration of these incentives by Revenue Canada. Provincial income tax incentives for research and development are discussed in Annex I. The next section describes the federal SR&ED tax incentives. This is followed by a discussion of the federal policies and processes for administering these tax incentives. The final section outlines the various mechanisms for monitoring and managing the federal incentives.

The Federal "SR&ED" Tax Incentives
The federal government has provided income tax incentives for research and development since 1944 and there have been many changes over the years. Delivery mechanisms have included accelerated deductions, incremental bonus deductions and investment tax credits, and have been designed to include both regional and small business considerations. The basic structure of the current system of federal income tax incentives for SR&ED was put in place between 1983 and 1985, but has continued to evolve since then. Key elements of the current system include the definitions of SR&ED and allowable SR&ED expenditures, income tax deductions and investment tax credits. Each of these elements is described below.
Definition of SR&ED
SR&ED is defined in income tax legislation to be systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. The following three broad categories of work are eligible:

basic research;

applied research; and

experimental development.

Basic research is work undertaken for the advancement of scientific knowledge without a specific practical application in view. Applied research is work undertaken for the advancement of scientific knowledge with a specific practical application in view. Experimental development is work undertaken for the purposes of achieving technological advancement for the purposes of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto. The vast majority of the claims for the SR&ED tax incentives are for experimental development.
Certain support work is also eligible where it is commensurate with the needs, and directly in support of basic research, applied research or experimental development. To be eligible, the support work must be in respect of engineering, design, operations research, mathematical analysis, computer programming, data collection, testing and psychological research.
There is also certain work that is excluded from the definition of SR&ED.⁹ Excluded work includes: market research or sales promotion; quality control or routine testing of materials, devices, products or processes; research in the social sciences or the humanities; prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas; the commercial production of a new or improved material, device or product or the commercial use of a new or improved process; styles changes; and routine data collection.
Eligible Expenditures
1) SR&ED in Canada
Current and capital expenditures in respect of SR&ED in Canada performed by, or on behalf of, a taxpayer and related to a business of the taxpayer including a possible extension of that business, may be eligible for the SR&ED tax incentives. In addition, expenditures on equipment used primarily (more than 50 per cent) for SR&ED in Canada may earn a partial tax credit.
However, not all current and capital expenditures incurred for SR&ED in Canada are eligible for these tax incentives. For example, capital expenditures for the acquisition of land or buildings (other than a prescribed special purpose building), and current expenditures for related rental or leasehold payments are not allowable SR&ED expenditures. Also excluded are expenditures made to acquire rights in, or arising out of, SR&ED. Furthermore, some expenditures that are eligible for SR&ED income tax deductions are not eligible for SR&ED investment tax credits; for example, interest costs, legal and accounting fees, advertising or selling expenses. As well, while the costs of equipment used primarily for SR&ED in Canada may earn a partial tax credit, they are not eligible for an SR&ED tax deduction – instead, these expenditures are depreciable under the normal system of capital cost allowances.
In general, current expenditures that are eligible for the SR&ED tax incentives include:

salaries or wages of employees directly engaged in SR&ED¹⁰;

the cost of materials consumed in SR&ED;

lease costs relating to machinery and equipment used all or substantially all

(90 per cent or more) for SR&ED;
eligible expenditures incurred by contractors performing SR&ED directly on behalf of the taxpayer¹¹; and

eligible expenditures incurred by certain third parties where the taxpayer is entitled to exploit the results of the SR&ED¹².

In general, capital expenditures that are eligible for the SR&ED tax incentives consist of expenditures for machinery and equipment that is all or substantially all used or consumed in the performance of SR&ED in Canada.
Taxpayers have a choice in how they wish to treat overhead and administrative expenditures for a taxation year. They can use either the traditional method or the "proxy method" for allocating these expenditures. Under the traditional method, overhead and administrative expenditures must be specifically identified and allocated in respect of SR&ED and may be eligible for both the SR&ED tax deduction and credits. Under the proxy method, these costs are deductible as ordinary overhead and administrative expenses and a notional amount is calculated which is eligible for the SR&ED tax credits. The notional amount for overhead and administrative costs is 65 per cent of salaries or wages (other than benefits, bonuses and unpaid amounts¹³) in respect of employees directly engaged in SR&ED; for example, the salaries of researchers carrying out experiments.¹⁴Salaries or wages of administrative staff who are providing a service to the SR&ED staff are not included as these amounts are captured as part of the overhead proxy (as are other types of overhead expenses). The use of the proxy method is optional. However, once the choice is made, it is irrevocable for that taxation year.
2) SR&ED Outside Canada
Current expenditures in respect of SR&ED performed outside Canada by, or on behalf of, a taxpayer and related to the business of the taxpayer may also be eligible to be deducted as SR&ED expenditures. In this case, the current expenditures must be either all or substantially all (90 per cent or more) attributable or directly attributable to the performance of SR&ED. Directly attributable current expenditures are defined by regulation to be costs of materials consumed in SR&ED, salaries or wages of employees undertaking, supervising or supporting SR&ED, and other expenditures directly related to SR&ED that would not have been incurred in the absence of the SR&ED. The current expenditures may be incurred by contractors performing SR&ED directly on behalf of the taxpayer or, where the taxpayer is entitled to exploit the results of the SR&ED, by certain third parties. ¹⁵
Current expenditures incurred for SR&ED outside Canada are not eligible for the SR&ED tax credits. Furthermore, capital expenditures in respect of SR&ED performed outside Canada do not qualify for either an SR&ED tax deduction or the tax credits.
3) Government and Non-Government Assistance
Both government and non-government assistance receivable by a taxpayer in a taxation year reduce the amount of expenditures available for the SR&ED tax incentives in that year. Government assistance is defined to include all forms of assistance from a public authority other than SR&ED tax credits. The amount of SR&ED tax credits used in a taxation year reduces the amount of eligible expenditures in the following taxation year. Non-government assistance includes any amount received by a taxpayer from any other person that can reasonably be considered an inducement, reimbursement, contribution, allowance or assistance.
SR&ED Tax Deductions
1) SR&ED in Canada
Taxpayers are allowed to fully deduct eligible current and capital expenditures in respect of SR&ED incurred in the year. SR&ED expenditures that are not deducted in a year can be carried forward indefinitely. This is accomplished through the use of an SR&ED expenditure pool with an unlimited carry-forward period. SR&ED expenditures incurred in a year are added to the expenditure pool and can be deducted to the extent desired by the taxpayer. The pool balance remaining at the end of a year becomes the opening balance of the subsequent year.
There are two key differences between these income tax deductions for SR&ED expenditures and most other types of expenditures:

SR&ED capital expenditures can be fully deducted in the year incurred – capital expenditures are normally deductible over time through the capital cost allowance system; and

SR&ED current expenditures can be carried forward indefinitely – current expenditures are normally deductible only in the year incurred, and may create a non-capital loss which can generally be carried back three years or forward seven years.

2) SR&ED Outside Canada
Eligible current expenditures on SR&ED carried on outside Canada are fully deductible in calculating taxable income for a taxation year. However, this deduction is not the same as that provided for SR&ED in Canada. In particular, current expenditures on SR&ED performed outside Canada are not included in the SR&ED expenditure pool, cannot be carried forward and must be deducted in the year the expenditure is incurred. In general, capital expenditures on SR&ED incurred outside Canada are deductible under the system of capital cost allowances.
SR&ED Tax Credits
There are currently two rates of investment tax credit for SR&ED in Canada: a general rate of 20 per cent and an enhanced rate of 35 per cent for smaller Canadian-controlled private corporations (CCPCs) – i.e. CCPCs with prior-year taxable income under $400,000 and prior-year taxable capital employed in Canada under $15 million. From 1983 through 1994, a 30 per cent rate of tax credit was also available for SR&ED expenditures incurred in the Atlantic Provinces and the Gasp� region. ¹⁶
The amount of SR&ED expenditures that can earn tax credits at the enhanced rate is referred to as the expenditure limit. The expenditure limit is generally $2 million for CCPCs with prior-year taxable income of $200,000 or less. This expenditure limit is reduced on the basis of the following two criteria. First, the expenditure limit is phased out for CCPCs with prior-year taxable income between $200,000 and $400,000. For each dollar by which taxable income for the prior year exceeds $200,000, the SR&ED expenditure limit for the year is reduced by $10. In addition, the expenditure limit is phased out for CCPCs with prior-year taxable capital employed in Canada between $10 million and $15 million. For every $10 by which taxable capital employed in Canada for the prior year exceeds $10 million, the SR&ED expenditure limit for the year is reduced by $4. ¹⁷
A partial tax credit, equal to one-half of the normal credit, is also available for expenditures in respect of new equipment used primarily for SR&ED in Canada. This partial credit is earned in two instalments. The first instalment – one-half of the partial credit (i.e. one-quarter of the full credit) – is earned in the first taxation year that ends at least 12 months after acquisition of the equipment (i.e. the initial period). The second instalment is earned in the taxation year that ends at least 24 months after acquisition^18.
Investment tax credits may be deducted from federal taxes otherwise payable. Unused tax credits can be carried back three years (to the extent that they were not deductible in the year they were earned) or carried forward 10 years. In addition, unincorporated businesses and smaller CCPCs can obtain a refund of unused credits earned in a year. The general rate of refund is 40 per cent for both current and capital expenditures. However, current expenditures that earn SR&ED tax credits at the 35 per cent rate are fully refundable.¹⁹Corporations can also assign expected refunds of SR&ED tax credits to lenders as security for bridge financing for their operations. Such assignments, however, are not binding on the Crown. Table 2.1 summarizes federal SR&ED tax credit rates and rates of refundability.
Administration of the SR&ED Tax Incentives
Revenue Canada is responsible for administering the SR&ED tax incentives provided by the federal government and, in accordance with the Tax Collection Agreements, the tax incentives for research and development provided by Manitoba, New Brunswick, Newfoundland and Nova Scotia. Ontario and Quebec do not have agreements with the federal government for administering their provincial corporate income tax and, accordingly, administer their own research and development tax incentives.
Revenue Canada: Structure and Processes
The policy and legislative functions for administering the federal SR&ED tax incentives are located in Ottawa in the Verification, Enforcement and Compliance Research Branch ("Headquarters") which is responsible for the administration of all audit programs in Revenue Canada. The SR&ED administration function is centred in two groups within the Branch:

the Scientific Research Section – Science advisors and technical consultants employed under contract²⁰provide the scientific or technical expertise necessary to determine the eligibility of work claimed for the SR&ED tax incentives or to service the needs of claimants. The mandate of the section is to provide leadership and direction in the promotion and delivery of the SR&ED tax incentives, to ensure consistency in applying the meaning of SR&ED across Canada, and to ensure consistency in the quality of the scientific advice provided to Revenue Canada and taxpayers.

the Tax Incentive Audit Section – Auditors provide the financial expertise to determine the eligibility of expenditures claimed for the SR&ED tax incentives or to service the needs of claimants. The mandate of the section is to enhance awareness of the availability of the tax incentives; to facilitate access to the tax incentives; to obtain a high standard of self-assessment; to provide assistance in delivering the tax incentives in a timely manner; and to minimize uncertainty to clients.

Table 2.1
Federal SR&ED Tax Credit Rates and Rates of Refundability (%)¹

Business Type Credit Rates Refundability Rates

Current Expenditures Capital Expenditures

Unincorporated Businesses 20 40 40

CCPCs with prior-year taxable income,

- of $200,000 or less:

Expenditures up to expenditure limit² 35 100 40

Expenditures over expenditure limit 20 40 40

- between $200,000 and $400,000:

Expenditures up to expenditure limit³ 35 100 40

Expenditures over expenditure limit 20 0 0

CCPCs with prior-year taxable capital employed in Canada between $10 million and $15 million:

Expenditures up to expenditure limit⁴ 35 100 40

Expenditures over expenditure limit 20 0 0

All Other Corporations
20
0
0

¹A 30% rate of tax credit was also available for SR&ED expenditures incurred in the Atlantic Provinces and the Gasp� region from 1983 through 1994.
²Expenditure limit is generally $2 million per annum.
³ Expenditure limit for CCPCs is phased out for prior-year taxable income between $200,000 and $400,000.
⁴Expenditure limit for CCPCs is phased out for prior-year taxable capital employed in Canada between $10 million and $15 million.

These sections work closely together in developing administrative policy; providing functional guidance and direction for the administration of the SR&ED tax incentives; monitoring the delivery of the tax incentives through offices located across the country ("field" offices); and liaising with the SR&ED community.
The SR&ED tax incentives are delivered through field offices by both science and audit staff. Claims, sent by the taxpayer to the local taxation centre as part of their annual tax return, are forwarded to the associated regional office where they receive an initial review for completeness. If a claim is not complete, the taxpayer is contacted and requested to provide any missing information. Once complete, claims are reviewed by a science advisor or a technical consultant to verify that the underlying work meets the definition of SR&ED. Science advisors are located in seven regional Co-ordinating Tax Services Offices. The work claimed may be found to meet the definition fully, partially or not at all. Expenditures relating to eligible SR&ED then receive a financial review to assure the validity of the costs claimed. Depending on various criteria, claims may receive a limited review or undergo a complete audit. The financial review is undertaken by auditors located in 38 Tax Services Offices across the country. The policies and procedures for organizing and managing the delivery of the SR&ED tax incentives within the field offices are determined by local field management and consequently may vary somewhat from office to office.
SR&ED claimants have access to an appeals function as part of the Revenue Canada appeals process. The objective of the Appeals Program is to resolve disputes for all claimants in an impartial, objective and timely manner. Any claimant who objects to an assessment or reassessment, as determined by the department, may file a Notice of Objection at their local office.
The appeals function dealing with the determination of SR&ED eligibility issues is co-ordinated centrally in Ottawa. Objections to an assessment or reassessment concerning financial expenditures are resolved at the local level. In both situations, resolution of the Notice of Objection or Appeal remains the responsibility of the local Appeals Officer who informs the taxpayer in writing of the outcome. Where the disposition of the appeal is a Notice of Confirmation or a Notice of Assessment, the taxpayer has 90 days to appeal the decision to the Tax Court of Canada.
SR&ED Forms and Administrative Guidelines
In order to access the tax incentives for SR&ED in Canada, taxpayers are required to submit, along with their income tax return, complete and current versions of up to four prescribed forms: forms T661, T2038, T1145 and T1146. Expenditures for SR&ED conducted outside Canada are claimed with other business expenditures on the T2 Corporation Income Tax Return.
Revenue Canada has issued a number of administrative guidelines to assist taxpayers in filling out the prescribed forms and in determining eligible SR&ED. These include: the Guide to Form T661, various Information Circulars and Interpretation Bulletins, and a series of Application Policies and Directives from Head Office.
1) Forms T661, T2038, T1145 and T1146
Prescribed Form T661, Claim for Scientific Research and Experimental Development (SR&ED) Expenditures Carried on in Canada, is used to provide information on eligible SR&ED, certain payments to contractors and third parties, and certain financial information necessary for the administration of the SR&ED tax incentives. It is also used to calculate eligible expenditures for purposes of both the deduction and the investment tax credits as well as the amount of the SR&ED tax deduction available and claimed in a taxation year. Revenue Canada issues a guide to explain how to complete Form T661.²¹ Form T661 must be filed within 18 months of the end of the taxation year in which the expenditures are incurred in order for a taxpayer to claim the expenditures as being in respect of SR&ED in Canada. Non-profit SR&ED corporations resident in Canada must also file Form T661 with their annual return to report their SR&ED work and expenditures.
Prescribed Form T2038 (CORP), Investment Tax Credit – Corporations, and prescribed Form T2038 (IND), Investment Tax Credit (Individuals), are used to calculate the SR&ED tax credit or refund for a taxation year. As is the case for Form T661, these T2038 forms must be filed within 18 months after the end of the taxation year in which the expenditures are incurred in order for a taxpayer to claim the expenditures for SR&ED in Canada.
Prescribed Form T1145, Agreement to Allocate Assistance for Scientific Research and Experimental Development (SR&ED) Expenditures Between Persons Not Dealing at Arm’s Length, is used to transfer amounts in respect of government assistance, non-government assistance and contract payments from a taxpayer to a non-arm’s length person performing SR&ED on behalf of the taxpayer. In general, Form T1145 must be filed within six months of the end of the taxation year to which the agreement relates.
Prescribed Form T1146, Agreement to Transfer Qualified Expenditures Incurred in Respect of Scientific Research and Experimental Development (SR&ED) Contracts, is used to transfer to a taxpayer qualified expenditures incurred by a person with whom the taxpayer does not deal at arm’s length in respect of SR&ED performed under contract for the taxpayer. In general, Form T1146 must be filed within six months of the end of the taxation year to which the agreement relates.
2) Information Circulars and Interpretation Bulletins
The purpose of Information Circular 86-4, Scientific Research and Experimental Development, is to clarify what constitutes SR&ED under the Income Tax Regulations. The circular examines only the technical issues involved in characterizing eligible SR&ED work. Judgements on technical matters require the opinions of scientists, engineers and other technical experts.
Revenue Canada has also issued a number of additional Information Circulars in order to assist taxpayers and Revenue Canada staff interpret how Information Circular 86-4 applies to specific industry sectors. These sector-specific information circulars provide supplementary guidelines related to SR&ED and extend the guidelines contained in the main Information Circular 86-4. They include:

Information Circular 86-4R2SUP1, Scientific Research and Experimental Development: Automotive Industry Application Paper, June 28, 1991;

Information Circular 86-4R2SUP2, Scientific Research and Experimental Development: Aerospace Industry Application Paper, April 10, 1992;

Information Circular 94-1, Scientific Research and Experimental Development: Plastics Industry Application Paper, February 4, 1994; and

Information Circular 94-2, SR&ED: Machinery and Equipment Industry Application Paper, June 24, 1994.

In addition, Revenue Canada has issued Information Circular 97-1, Scientific Research and Experimental Development: Administrative Guidelines for Software Development to assist taxpayers and Revenue Canada staff in interpreting how the SR&ED tax incentives apply to software development. These software guidelines provide interpretation of the definition of SR&ED in income tax legislation and expand on the guidelines contained in Information Circular 86-4. The software guidelines are directed towards software specialists involved in the management of SR&ED who are responsible for providing technical descriptions to Revenue Canada as part of claims for SR&ED expenditures.
Interpretation Bulletin 151, Scientific Research and Experimental Development Expenditures, explains how to identify expenditures qualifying for the SR&ED tax incentives as well as the incentives themselves – both the SR&ED tax deduction and the investment tax credits for SR&ED.
3) Application Policies and Directives
These guidelines address specific issues concerning the administration of the SR&ED tax incentives. Examples include retroactive claims for SR&ED, the definition of "contract payment", the eligibility of testing, late-filed proxy elections and incomplete SR&ED claims.
In addition, Application Policy SR&ED 96-03, Claimants’ Entitlements and Responsibilities (February 19, 1996) sets out Revenue Canada’s commitment to promptly reviewing claims for the SR&ED tax incentives and outlines a number of administrative policies that have been established to deliver these incentives to corporations in a timely manner. It is requested on Form T661 that corporations place this form on top of the T2 corporate tax return for the year so that the SR&ED claim can be quickly identified. Application Policy SR&ED 96-03 indicates that, in cases where a claim is made for a refundable SR&ED tax credit and that claim is not audited, administrative policy is to issue a refund cheque within 60 days of receiving a completed claim. In cases where the refundable claim is audited, the policy is to issue a refund cheque within 120 days of receiving a completed claim. For non-refundable claims, the policy is to inform the corporation within 120 days of receiving a completed claim whether or not it will be accepted as filed or an audit will be conducted. If an audit is to be conducted, taxpayers are offered the choice of having it completed within one year.
Monitoring and Managing the SR&ED Tax Incentives
In addition to liaison among officers responsible for policy or administration relating to the SR&ED tax incentives, the Department of Finance and Revenue Canada have established a number of formal mechanisms to ensure that these incentives can be monitored and managed appropriately. These include the SR&ED Interdepartmental Working Group and Revenue Canada’s Advisory Committee on Scientific Research and Experimental Development. These mechanisms are described in this section.
SR&ED Interdepartmental Working Group
Established in 1994, the SR&ED Interdepartmental Working Group provides a structured forum for identifying and discussing on a timely basis all SR&ED tax issues which affect the two departments, and for developing, recommending and implementing strategies and policies for addressing them. Subject areas include:

ongoing and emerging issues in the determination of expenditure eligibility and the audit of expenditure claims;

the quality and quantity of program statistics collected, maintained in data bases and disseminated by Revenue Canada;

legislative changes being contemplated by the Department of Finance, and changes to prescribed forms, information circulars and policy papers being contemplated by Revenue Canada; and

all other activities being undertaken by the departments in the area of SR&ED.

Meetings of the SR&ED Interdepartmental Working Group are held on a regular basis (every two or three months) and participants consist of senior representatives of the divisions or sections responsible for the SR&ED income tax incentives. Regular participants include senior representatives from:

the Business Income Tax Division and the Tax Legislation Division of the Department of Finance; and

the Specialized Compliance Enforcement Division of Revenue Canada.

Senior representatives from other groups within Revenue Canada participate by invitation depending on the agenda items for a particular meeting.
Revenue Canada Advisory Committee
The Advisory Committee on Scientific Research and Experimental Development provides a means for Revenue Canada to gather input and feedback from industry, industry associations, consultants and other federal departments, including the Department of Finance, primarily on the administration of the tax incentives, but also on tax policy. Meetings are held on an ad hoc basis and generally average about two per year.
Other Linkages
There is a routine transfer of SR&ED tax information from the Statistical Services Division of Revenue Canada, which is responsible for compiling and maintaining the SR&ED data, to the Department of Finance. Data from the T661 and T2038 forms for each corporation claiming the SR&ED tax incentives are updated quarterly and are combined, on an annual basis, with other tax and financial information reported on each corporation’s income tax return (Form T2). The Statistical Services Division also responds to requests for additional information on the SR&ED tax incentives on an ad hoc basis as needs arise.
Senior officials of the Tax Policy Branch of the Department of Finance and relevant branches of Revenue Canada meet on a monthly basis to review issues of mutual concern. To the extent that they arise, issues relating to the SR&ED tax incentives may be tabled at these meetings.

End Notes: Missing footnotes are relevant for the purposes of reviewing the material presented on this site.
6. See OECD (1994), Chapter 2, pp. 29-45. The OECD defines research and development as creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications. This work may take the form of basic research, applied research or experimental development. The OECD also discusses (see Chapter 1, pp. 18-21) the distinction between research and development and other closely related activities that can be grouped more broadly under the headings of scientific and technological activities (STA) and scientific and technological innovation (STI). STA comprise systematic activities which are closely concerned with the generation, advancement, dissemination and application of scientific and technical knowledge in all fields of science and technology. These include such activities as research and development, scientific and technical education and training, and scientific and technological services. STI may be considered as the transformation of an idea into a new or improved product introduced on the market or a new or improved operational process used in industry or commerce. Innovations involve a series of scientific, technological, organizational, financial and commercial activities. Research and development is only one of these activities and may be carried out at different phases of the innovation process.
7. Total federal support for science and technology (or STA; see previous footnote) was about $7.0 billion in 1996-97. Revenue Canada data indicates that investment tax credits for SR&ED performed by, or on behalf of, businesses accounted for $1.25 billion of this amount. Statistics Canada (1997) indicates that non-tax assistance for science and technology was $5.7 billion of which $2.3 billion was for activities related to research and development (e.g., education and training, data collection and information) and $3.4 billion was for research and development per se. The non-tax funding was directed to science and technology performed by federal government employees (60.8 per cent), Canadian businesses (15.7 per cent), Canadian universities (15.5 per cent), other Canadian performers such as private non-profit institutions, other levels of government and provincial research councils and foundations (3.6 per cent), and foreign performers (4.3 per cent).
8. See, for example, Warda (1997). This work is also not generally in accordance with the internationally accepted OECD definition.
10. There are special rules for salaries or wages paid to a "specified employee" – a person who does not deal at arm’s length with their employer or who has a significant interest (i.e. 10 per cent or more) in the shares of their employer. These rules place a ceiling on the amount of salaries or wages paid to these employees who are eligible for the SR&ED tax incentives. Salaries or wages of specified employees directly engaged in SR&ED are limited to a maximum of five times the year’s maximum pensionable earnings for purposes of the Canada Pension Plan and exclude any remuneration based on profits or bonuses.
11. Where SR&ED is performed under contract between non-arm’s length parties, expenditures eligible for the SR&ED tax credits are restricted to those incurred by the SR&ED performer. The performer can transfer these expenditures to the payor up to a maximum of the contract amount. The contract payment itself is not an eligible expenditure for tax credit purposes and does not reduce the eligible expenditures of the performer. In addition, where goods or services for SR&ED are purchased by an SR&ED performer from a person with whom the performer does not deal at arm’s length, expenditures eligible for SR&ED tax credits are limited to the cost to the non-arm’s length person of providing the goods or services.
12. Eligible third parties are corporations resident in Canada including tax exempt non-profit SR&ED corporations and approved associations, universities, colleges, research institutes and organizations. In addition, tax-exempt non-profit SR&ED corporations resident in Canada are eligible third parties if the taxpayer is a corporation and the SR&ED is basic or applied research that relates to other SR&ED being undertaken by the taxpayer and which has the technological potential for application to other unrelated businesses.
13. Current expenditures that are not paid within 180 days of year end are deemed to have been incurred for SR&ED tax credit purposes in the year the amount is paid.
14. For purposes of the overhead proxy, salaries or wages of specified employees (see footnote 7) are limited to a maximum of two-and-one-half times the year’s maximum pensionable earnings for purposes of the Canada Pension Plan and exclude any remuneration based on profits or bonuses.
15. These third parties are approved associations, universities, colleges, research institutes or other similar institutions which undertake SR&ED outside Canada.
16. This regional tax credit was generally eliminated for SR&ED expenditures incurred after 1994.
17. Thus, the maximum amount of SR&ED tax credit available for smaller CCPCs at the enhanced rate is $700,000, which corresponds to eligible expenditures of $2 million.
18. These credits are only available to equipment that is used primarily in SR&ED during the initial period – i.e. the time between acquisition and the end of the first taxation year that is at least 12 months after acquisition. Equipment not used primarily in SR&ED during the initial period would never be eligible for partial tax credits.
19. Other than for corporations controlled by tax-exempt entities, provincial or municipal governments, or other public authorities.
20. Technical consultants may be employed on a temporary basis either to provide specialized knowledge or to assist with large work loads.
21. Information for Businesses that Conduct SR&ED in Canada: Claiming Scientific Research and Experimental Development Expenditures, Guide to Form T661.
22. Smaller CCPCs refer to Canadian-controlled private corporations with prior-year taxable income under $400,000 and prior-year taxable capital employed in Canada under $15 million.
51. See Manitoba (1992), p. 3.
52. See New Brunswick (1994), p. 35.
53. See Newfoundland and Labrador (1995), p. 8 and (1996).
54. See Nova Scotia (1994), p. 12.
55. See Ontario (1994), pp. 24-26.
56. See Ontario (1997), pp. 88-91.
57. See Quebec (1996), p. 13 and pp. 31-37.
58. See McFetridge and Warda (1983) and Warda (1994) for further information on the minimum benefit-cost ratio (or B-Index) methodology.