Research & Development Financial Incentives in Canada and Alberta
Neufeld Legal P.C. can be reached by telephone at 403-400-4092 / 905-616-8864 or email Chris@NeufeldLegal.com
Both the federal government and Alberta government provide financial incentives to the pursuit of research & development undertaken within the jurisdiction that run in conjunction with one another, through the Scientific Research & Experimental Development (SR&ED) federal tax incentive program and the Alberta Innovation Employment Grant (IEG).
Scientific Research & Experimental Development (SR&ED) Federal Tax Incentive Program
The Scientific Research & Experimental Development (SR&ED) federal tax incentive program aims to encourage businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada. The program is administered by the Canada Revenue Agency.
The SR&ED program provides a tax credit that reduces a company's income tax payable. If a company doesn't owe taxes, the credit can be refunded. The credits can be claimed for eligible work performed in Canada on or after January 1, 2014. The program defines SR&ED as:
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Basic research: This is work undertaken for the advancement of scientific knowledge without a specific practical application in mind.
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Applied research: This is work undertaken for the advancement of scientific knowledge with a specific practical application in mind.
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Experimental development: This is work undertaken to achieve technological advancement to create new, or improve existing, materials, devices, products, or processes.
The Canada Revenue Agency has specific criteria to determine if a project qualifies for SR&ED, focusing on whether the work involved a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. This includes work carried out for the purpose of generating scientific or technological knowledge.
To qualify for SR&ED credits, the work must involve a technological uncertainty and a technological advancement. This means there must be a genuine question about whether a technological goal can be achieved and the work must lead to new knowledge or a new product/process. Eligible expenditures typically include:
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Salaries and wages for employees directly engaged in SR&ED.
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Contract payments to third parties for SR&ED work.
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Materials consumed or transformed in the course of SR&ED.
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Overhead expenses, which can be claimed under a proxy method.
Alberta Innovation Employment Grant (IEG)
The Alberta Innovation Employment Grant (IEG) is provincial equivalent of the federal SR&ED tax incentive program, which is designed to encourage R&D activities within the province of Alberta, particularly for small and medium-sized businesses.
The IEG is a refundable tax credit that works alongside the federal SR&ED program.
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Eligibility: The grant is available to corporations that conduct R&D in Alberta and are eligible for the federal SR&ED program. It's specifically targeted at small and medium-sized enterprises (SMEs), with benefits being phased out for companies with taxable capital between $10 million and $50 million. Companies with taxable capital of $50 million or more are not eligible.
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Grant Structure: The IEG offers a tiered grant system based on a corporation's R&D spending.
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An 8% grant for eligible R&D spending up to the corporation's base spending level.
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An additional 12% grant for eligible R&D spending that exceeds the base spending level.
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This means a first-time claimant or a company with no prior R&D spending will receive a 20% grant on their eligible expenditures.
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Expenditure Limit: The grant applies to a maximum of $4 million in annual R&D spending.
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Administration: The IEG is claimed through the corporate tax system by filing a specific schedule with the Alberta Corporate Income Tax Return (AT1). Payments are processed after the federal SR&ED program has verified the qualifying expenses.
While the Alberta IEG parallels the federal SR&ED program in terms of eligible expenses and activities, there are some key differences:
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Purpose: The federal SR&ED program is a tax incentive, while the IEG is a grant delivered through the tax system.
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Jurisdiction: IEG applies only to R&D expenditures carried out in Alberta.
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Impact on Federal SR&ED: Any amount received from the IEG is considered government assistance. This reduces the pool of eligible expenditures for the federal SR&ED calculation.
For business enterprises looking to optimize the availability of federal and provincial tax incentive programs, as well as dealing with other legal aspects pertaining to financing and corporate development, contact our law firm in strict confidence, by telephone at 403-400-4092 or 905-616-8864, or via email at Chris@NeufeldLegal.com.
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Research & Development Financial Incentives in Canada and Alberta: Both the federal government and Alberta government provide financial incentives to the pursuit of research & development undertaken within the jurisdiction that run in conjunction with one another, through the Scientific Research & Experimental Development (SR&ED) federal tax incentive program and the Alberta Innovation Employment Grant (IEG). Read more. |
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