R&D Tax Credits FAQ

Here you’ll find answers to the most common questions about SR&ED, CDAE, and IDMTC in Canada

Understanding R&D Tax Credits in Canada

R&D tax credits are government incentives designed to encourage innovation by reducing the tax burden on businesses conducting research and development activities.

To qualify for R&D Tax Credit programs such as SR&ED, a business must:

  1. Conduct research and development activities aimed at advancing scientific or technological knowledge.
  2. Show a systematic approach to experimentation (e.g., formulating a hypothesis, testing, and analyzing results).
  3. Incur eligible expenditures, such as salaries, materials, subcontractors, and overhead costs, directly related to R&D work.
  4. Operate as one of the following:
    • Canadian-controlled private corporation (CCPC). These can receive cash back at an enhanced rate.
    • Canadian-public-company. These can receive cash back at an enhanced rate starting Dec 2024.
    • Individuals, partnerships, trusts, foreign-owned corporations. These receive tax offset credits rather than cash.
  5. Non-CCPCs (e.g., foreign-owned or publicly traded companies) can claim SR&ED tax credits but at a lower, non-refundable rate. With the recent CRA announcement on December 13, 2024, Canadian Public Corporations can also get the 35% refundable rate.
  6. Public companies and large corporations conducting R&D in Canada can also claim SR&ED tax credits, but they are generally non-refundable and applied against tax liabilities.

R&D Tax Credit programs benefit multiple stakeholders: 

  • Business Owners/CEOs: Gain access to non-dilutive (non-equity) funding to support innovation and extend financial runway. 
  • CFOs/Finance Teams: Reduce tax liabilities, optimize budgets for R&D expenditures, and improve cash flow through refundable credits.  
  • CTOs/Engineering Leads: Fund technology innovation and development projects. 
  • Innovation & Product Leaders: Drive long-term R&D strategy, ensuring funding aligns with business objectives and product innovation timelines. 
  • R&D Tax & Compliance Teams: Ensure claims are audit-ready, compliant with CRA regulations, and structured to maximize eligible refunds. 

Benefits of R&D Tax Programs by Business Type

Startups benefit significantly from refundable tax credits, such as SR&ED’s enhanced rates for CCPCs, which can provide much-needed cash flow to reinvest in early-stage product development and innovation. They can get up to 64% of salary expenditures back.

SMBs use these programs to offset R&D costs, reinvest in scaling operations, and reduce taxable income, allowing them to compete with larger players in the market.

Mid-market companies leverage these incentives to fund significant R&D projects, gain a competitive edge through technological innovation, and optimize overall profitability.

Federal R&D Tax Credits: The SR&ED Program and ITCs

The Scientific Research and Experimental Development (SR&ED) program is Canada’s largest federal tax incentive program supporting research and development. It provides tax incentives to businesses conducting eligible R&D activities in Canada, including tax credits, refunds, or a reduction in tax payable.

The ITC is a federal tax incentive under the SR&ED program, allowing taxpayers to earn credits on eligible R&D expenditures, with enhanced rates for Canadian-Controlled Private Corporations (CCPCs) and Canadian Public Corporations.

The basic ITC rate is 15% for most entities, while CCPCs and CPCs may qualify for an enhanced refundable rate of 35% on the first $3 million of eligible R&D expenditures for claims prior to December 13, 2024, and $4.5M after December 13, 2024.

Provincial R&D Tax Credits by Region

BC offers a refundable credit of 10% on eligible expenditures for CCPCs and a non-refundable credit of 10% for other corporations.

Alberta offers the IEG (Innovation and Employment Grant) program, which is SR&ED, by another name. Companies get 8% to 20% back on all Alberta SR&ED eligible expenditures.

The OITC is a refundable tax credit of 8% for small and medium-sized corporations conducting eligible R&D in Ontario.

The ORDTC is a non-refundable tax credit of 3.5% for corporations conducting eligible R&D in Ontario.

Quebec offers a refundable tax credit with varying rates depending on the company size and research type.

Refundable credits are available in provinces like Nova Scotia (15%) and Manitoba (7.5% for in-house R&D and 7.5% non-refundable). Non-refundable credits are common in other provinces.

Specialized Tax Credits and Non-Equity Programs

The National Research Council of Canada Industrial Research Assistance Program (IRAP) is a federal program that provides financial support to SMBs undertaking technology innovation projects, although it reduces SR&ED tax credit amounts.

CDAP is a federal initiative that provides grants and advisory support to help businesses develop and implement digital strategies.

CDAE or eBusiness is a refundable tax credit designed to support businesses in adopting digital technologies to enhance competitiveness, offering funding for implementation by offsetting eligible expenses. CDAE is a Quebec-only program.

  • Small and medium-sized businesses (SMBs) investing in new software, digital tools, or cloud computing.
  • Companies looking to improve internal processes, data management, or customer engagement through digital transformation.
  • Key Benefits:
    • Offset up to 20% of eligible digital adoption costs through a refundable tax credit.
    • Supports investments in CRM, ERP, cybersecurity, and automation technologies.
    • Encourages businesses to streamline operations and stay competitive in a digital-first world.

While CDAE is a Quebec-only program, some provinces offer additional funding to support digital transformation:

  • Ontario: Businesses adopting digital tools may qualify for the Ontario Innovation Tax Credit (OITC) to complement CDAE.
  • British Columbia: Offers digital adoption programs through local innovation hubs that work alongside CDAE.
  • Alberta: Focuses on helping businesses through the Innovation Employment Grant (IEG) and other support initiatives to fund digital adoption projects.

This program supports the development of interactive digital media products, such as video games and educational software.

Breakdown of IDMTC by Province

The Ontario Interactive Digital Media Tax Credit (OIDMTC) offers a refundable tax credit of up to 40% for eligible interactive media development labor costs. The refund rate depends on the corporate structure, project timeline and where the expenditures took place.

Quebec provides a refundable tax credit of up to 37.5% for eligible labor costs related to interactive digital media projects, making it one of the most generous programs in Canada.

Yes, BC offers an Interactive Digital Media Tax Credit at a refundable rate of 17.5% for eligible labor expenses related to interactive digital media development.

Yes, Nova Scotia provides a refundable IDMTC; it is 50% on eligible expenses, or 25% on all expenses.

Manitoba offers a refundable Interactive Digital Media Tax Credit of up to 40% on labor costs and eligible marketing expenses for interactive digital media projects.

Alberta does not have a dedicated IDMTC program, but businesses may qualify for other innovation-focused grants or the SR&ED program.

The province offers an Interactive Digital Media Tax Credit of 40% for labor expenses and 25% for other eligible development costs. It is $40K per employee and $2M per company for eligible expenditures.

IDMTC programs are provincially administered and support the creation of interactive digital media, offering significant tax credits for eligible labor and production costs. CDAE is a Quebec-only program administered and focuses on adopting digital technologies. Certain provinces provide complementary programs to enhance CDAE benefits.

It depends on your business activities:

  • If you are developing interactive media (e.g., video games, educational tools), IDMTC is a better fit.
  • If your goal is to adopt or integrate digital technologies into your business, CDAE would be the ideal choice.

Key Considerations for R&D Tax Credits

Federal credits are uniform across Canada, while provincial credits vary in rates and eligibility requirements based on location and activity.

Federal and provincial claims are generally filed within six months of the corporation’s year-end, consistent with the T661 and ITC filing deadlines.

Cross-Jurisdictional and Program Specific Questions

Yes, non-Canadian companies can claim R&D tax credits if they conduct eligible R&D work within Canada and meet specific criteria, such as having a permanent establishment in Canada. However, eligibility and benefits may differ from those for Canadian-controlled private corporations (CCPCs).

There are no excluded industries, however, the followings are excluded activities:

  • Market research or sales efforts.
  • Routine data collection or quality control.
  • Research without a clear technological or scientific objective.
  • Cosmetic improvements to existing products.

Yes, businesses can claim both federal and provincial R&D tax credits. However, provincial credits are considered government assistance and may reduce the federal SR&ED claim. Proper planning ensures maximum benefits from both programs.

Application and Process

Common mistakes include:

  • Insufficient documentation of R&D activities and expenditures.
  • [Underestimating] Failing to include or maximize eligible costs, such as subcontractor expenses or overhead.
  • Misclassifying non-R&D activities as R&D.
  • Missing critical filing deadlines or improperly completing forms.

During an audit, the CRA reviews the claimed R&D activities and expenditures to ensure they meet program criteria. Proper documentation, including technical reports and financial records, is critical. Working with experienced consultants like Boast can reduce risks and streamline the audit process.

Supporting Business Success

An experienced consultant simplifies the process by:

  • Ensuring compliance with federal and provincial program rules.
  • Maximizing claims by identifying all eligible activities and expenditures.
  • Reducing risks of audits by preparing thorough documentation.
  • Saving businesses time and effort in navigating complex application processes.

Boast leverages advanced technology and expert teams to streamline R&D tax credit claims, ensuring compliance and maximizing returns. From identifying eligible activities to supporting audits, Boast takes the complexity out of the process so businesses can focus on innovation.

Why Choose Boast

Boast simplifies navigating both federal and provincial programs like SR&ED, CDAE, and IDMTC, ensuring you maximize your returns.

We provide insights on complementary programs available in your province to ensure you’re leveraging every available incentive.

With our advanced technology platform and expert team, Boast ensures compliance and optimizes claims for all applicable R&D and digital media tax credits.

Boast combines specialized expertise, cutting-edge technology, and a customer-first approach to maximize R&D tax credits for businesses of all sizes, making it the preferred choice over traditional accounting firms or generalist consultants.

Boast vs. Big 4 and other Solution Providers

Boast focuses exclusively on R&D tax credits and innovation funding, providing deep expertise and tailored solutions. While the Big 4 offer R&D tax credits as part of their broader tax and audit services, other solution providers may have limited experience in navigating the nuances of R&D claims across industries.

Boast leverages a proprietary AI-powered platform to streamline the R&D tax credit claim process, automating documentation, reporting, and compliance. The Big 4 typically rely on traditional, manual processes, while some smaller solution providers may lack the advanced technology to ensure efficiency and accuracy.

Boast offers transparent, value-based pricing with no hidden fees, making it cost-effective for startups, SMBs, and mid-market companies. The Big 4 generally charge higher fees due to their premium brand, while other providers may use fixed percentage-based pricing models that are less predictable.

Boast employs specialized teams with deep technical and industry-specific knowledge focused solely on R&D tax credits. The Big 4 rely on general tax consultants who may lack this specialization, and smaller solution providers may not have the experience required for complex claims or audits.

Boast minimizes client involvement by handling all aspects of the claim process, including documentation, reporting, and audit preparation. Boast generally uses no more than 5 to 10 hours of a claimant`s time per claim. The Big 4 often require significant input and effort from the client, while smaller providers may lack the resources to offer end-to-end support.

Boast includes comprehensive audit defense as part of its services, ensuring peace of mind at no extra cost. The Big 4 may charge additional fees for audit defense, and smaller providers may not have the capacity or expertise to provide robust audit support.

Boast is tailored for startups, SMBs, and mid-market companies that need cost-effective and efficient R&D tax credit services. The Big 4 primarily cater to larger corporations, while smaller providers may be a good fit for niche or simple claims but lack the scalability for growing businesses.