An innovative program that offers funds to help companies augment the amount of their yearly budget that can be devoted to research and development, the Scientific Research and Experimental Development Tax Incentive Program (SRED) can be utilized by both large and small business concerns and provides more than $3 billion in tax incentives to over 20,000 applicants each year. It is extremely beneficial for various types of businesses and, in particular, has proven to be an excellent way to attain government funding for food processors.
How Does It Work?
Canadian food processing companies actively engaged in research and development can apply for the program. Those firms (including both Canadian-controlled corporations and other corporations, trusts, partnerships and proprietorships) that qualify may receive investment tax credits on 15-35% of qualified expenditures in the form of a reduction in taxes, a cash payment or both. The maximum amount that can be spent on expenditures may not exceed $3 million.
There are several ways in which food processors can utilize funding from the SRED tax incentive program to grow or otherwise advance their business. These include using research and development studies to improve their product in such ways as increasing shelf life and reducing reliance on artificial preservatives. Other areas for potential improvement include the method and quality of packaging, product formulation, upgraded quality assurance to ensure consistency, and better waste management.
For the R & D work to meet the SRED’s eligibility requirements, it must consist of
- Basic research that is designed to enhance the firm’s scientific understanding
- Applied research that concentrates on a specific goal
- Experimental development undertaken with the goal of attaining technological advancement to overcome previous scientific limitations and develop new products or processes that will improve the current line
The work must follow the guidelines of a systematic investigation; in this case, that would be a scientific study of a concept intended to solve an existing problem. Eligible expenditures directly connected to that work include contracts, salaries, third-party payments, material costs, overhead and related costs. The total of these costs must be estimated either on a yearly basis or via the proxy method, which is 55% of salaries for employees whose R & D work applies.
How to Claim Expenditures
Companies participating in the SRED program can claim their expenditures using Canada Revenue Agency form T661. The form allows you to calculate those expenditures that meet the requirements for the tax credit by providing information about the firm and the project in question, along with financial and statistical information and certifications. Companies participating must also file form T2SCH31.
While there are many tax incentive programs available to Canadian businesses, the SRED is comparatively straight-forward in both how it works and in the benefits available for food processors seeking government funding to expand and/or improve their operations. Free SRED seminars and webinars are also available to help fully understand the program, its benefits, and its procedures. Refundable claims are also processed in as little as 120 days.
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