In its essence, the Scientific Research and Experimental Development Tax Credit (SR&ED Tax Credit) program was initially developed for Canadians doing innovative work within Canada. As Canada had become aware of the several long-term benefits of having increased R&D operations within Canada, it is evident that such a program acts to provide aid and assistance to these companies, enacted to promote the continuation of such a beneficial unit of the economy. However, although the benefits of the SR&ED tax credit program would be perceived mainly for Canadian companies, the prospects for other companies do not appear as favourable. Thus, the question arises, of whether foreign companies performing research within Canada would qualify for the sr&ed tax credit program as well.
Toronto Accountants state that there are a few ways in which foreign companies could still reap the benefits of the SR&ED tax credit program. These benefits are perceived through the methods of filing through a Canadian Subsidiary, or through non-controlling interest of a Canadian Controlled Private Corporation (CCPC).
If the company is filing through a Canadian Subsidiary, the company must be carrying out all SR&ED functions within Canada, and must be paying the Canadian taxable employees and suppliers. Using this process, Toronto Accountants state that the company could claim a 20% non-refundable tax credit, which could be used against Federal Canadian Taxes, and may even allow them to be eligible for some Provincial benefits.
However, it must be noted that a method, which optimizes the benefits reaped through the SR&ED program, is through a foreign company’s non-controlling interest in a Canadian Controlled Private Corporation (CCPC). Through this route, Accountants in Toronto suggest that the CCPC could, in essence, be eligible for claiming up to 35% on the first $3 million of eligible expenses, as well eligibility for provincial incentives.
Canadian companies that perform R&D activities abroad could still submit claims for the SR&ED tax credit program, however, Toronto Accountants state that only up to 10% of the salaries and wages of SR&ED claim can be from eligible activities abroad. Also, the employees performing the SR&ED tasks must be Canadian inhabitants.
Canada highly promotes foreign companies performing R&D activities, as well as manufacturing and research within Canada. Moreover, as Canada would like to sustain such a relationship with the foreign companies, it seems reasonable for Canada to provide incentives in the form of credits for these companies, which would encourage them to continue their operations. Thus, it must be mentioned that Toronto Accountants state that the SR&ED tax credit program is one of the best tax credit programs worldwide, in regards to the promotion of innovation.
SRJ Chartered Accountants has offices in Toronto and Mississauga and assists clients virtually in various parts of the country and also clients globally. If you want to discuss the possibility of filing a SR&ED claim please contact one of the partners at our firm. We have an extremely strong group who file SR&ED Claims for companies and professional in various sectors. You can reach out to us directly through email (info@srjca.com) or by calling us at 647-725-2537.