Scientific Research and Experimental Development Tax Incentive Program
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| Scientific Research and Experimental Development Tax Incentive Program | |
|---|---|
| Name | Scientific Research and Experimental Development Tax Incentive Program |
| Type | Tax incentive |
| Established | 1985 |
| Jurisdiction | Canada |
| Administered by | Canada Revenue Agency |
| Purpose | Promote innovation, research, and development |
Scientific Research and Experimental Development Tax Incentive Program The Scientific Research and Experimental Development Tax Incentive Program provides tax credits and refunds to encourage research and development activities conducted by corporations and other entities in Canada. It interacts with federal institutions such as the Canada Revenue Agency, provincial agencies like Ontario Ministry of Finance, and national research bodies including the National Research Council (Canada), the Natural Sciences and Engineering Research Council, and the Canadian Institutes of Health Research. The program influences firms ranging from startups incubated at the Communitech accelerator to multinationals with operations in the Greater Toronto Area and facilities near the University of British Columbia.
Overview
The program originated from policy initiatives in the 1980s influenced by reports from the Fraser Institute and studies by the Conference Board of Canada, drawing on comparative models from the United Kingdom, the United States, and the European Union. Administratively, it is implemented under legislation administered by the Canada Revenue Agency and interacts with provisions in the Income Tax Act (Canada). Stakeholders include research-intensive firms such as BlackBerry Limited, biotechnology firms around the MaRS Discovery District, and manufacturing firms in regions like Hamilton, Ontario. Economic analyses by institutions such as the Bank of Canada, the International Monetary Fund, and the Organisation for Economic Co-operation and Development have assessed its effectiveness relative to grants from the Natural Sciences and Engineering Research Council and contracts from the National Research Council (Canada).
Eligibility and Qualified Activities
Eligible claimants typically include Canadian-controlled private corporations linked to entities like the Business Development Bank of Canada, public corporations listed on the Toronto Stock Exchange, and eligible foreign affiliates operating within special economic zones such as in Montreal or Vancouver. Qualified activities are defined by experimental work similar to projects undertaken at universities like the University of Toronto, the McGill University, and the Université de Montréal; clinical trials coordinated with institutions such as the Canadian Cancer Society; and prototype development in collaboration with industry associations like the Canadian Manufacturers & Exporters. Activities must demonstrate systematic investigation akin to programs at the Terry Fox Laboratory, the Perimeter Institute, or the Canadian Light Source and exclude routine quality control operations typical of sectors represented by organizations such as the Canadian Federation of Independent Business.
Claiming Process and Recordkeeping
Claims require detailed documentation paralleling best practices from audits conducted by agencies like the Office of the Auditor General of Canada and procedures recommended by accounting firms such as Deloitte, PwC, and Ernst & Young. Applicants provide technical narratives comparable to submissions to the Natural Sciences and Engineering Research Council and financial schedules consistent with filings to the Canada Revenue Agency and provincial treasuries including the Québec Ministry of Finance. Recordkeeping standards invoke examples from institutional repositories at the Library and Archives Canada and data management practices at research networks like the Canadian Research Knowledge Network and the Canadian Computing Consortium.
Incentive Rates and Calculation Methods
Calculation of refundable and non-refundable tax credits varies by claimant category and draws on the methodology used by provincial programs in Ontario, British Columbia, and Québec. Rates for Canadian-controlled private corporations can be compared to incentive schemes in the United Kingdom Research and Development Tax Relief and the Research and Development Tax Credit (United States), while enhanced rates for small enterprises resemble targeted credits offered by the Netherlands and Ireland. Eligible expenditures encompass wages reported under standards followed by payroll authorities such as the Canada Pension Plan, subcontractor payments that mirror contracts reviewed by the Competition Bureau, and overhead allocations analogous to costing approaches used by the Canadian Institute of Chartered Accountants.
Policy Objectives and Economic Impact
Objectives include raising national innovation intensity assessed by metrics used in reports from the OECD, improving commercialization outcomes highlighted in studies by the Council of Canadian Academies, and supporting clusters identified by regional development agencies such as Innovation, Science and Economic Development Canada and FedDev Ontario. Empirical research from the International Monetary Fund, the Bank of Canada, and the Harvard Business School demonstrates mixed effects on private R&D spending, productivity per worker evaluated in analyses by the Fraser Institute and the Conference Board of Canada, and spillovers to universities like the University of Waterloo and research parks such as the Kitchener–Waterloo corridor.
Compliance, Audits, and Penalties
Compliance is enforced through audits and reviews performed by the Canada Revenue Agency and oversight reports from the Office of the Auditor General of Canada, with procedural parallels to enforcement actions by the Internal Revenue Service and the HM Revenue and Customs. Penalties for false claims reflect statutes within the Income Tax Act (Canada), and appeals follow administrative routes similar to cases adjudicated before the Tax Court of Canada and adjudications involving bodies like the Federal Court of Canada. High-profile disputes have involved corporations represented by law firms such as Osler, Hoskin & Harcourt and Blake, Cassels & Graydon and drawn commentary from policy think tanks like the C.D. Howe Institute and the Broadbent Institute.