SR&ED glossary.

Costs that meet the rules for an SR&ED income tax deduction. This is a different calculation from qualified expenditures, which determine the investment tax credit. A cost may receive different treatment in the two calculations.

Funding or support, such as a grant, subsidy, or reimbursement, that can reduce the expenditures used to calculate a claim. Provincial R&D credits can also affect the federal calculation. Identify what the funding pays for before working out the adjustment.

A private corporation resident in Canada that meets specific incorporation, ownership, control, and share-listing conditions in the Income Tax Act. CCPC status affects which SR&ED credit and refund rules apply.

The tax year covered by an SR&ED claim. A project may span several years, but the claim reports the work and related expenditures for the particular tax year being claimed.

Work that meets the SR&ED definition: basic research, applied research, experimental development, and qualifying support work. Market research, routine product testing, and ordinary quality control are excluded. Testing done specifically to support eligible R&D can qualify as support work.

The amount of qualified expenditure that can earn the enhanced federal credit rate in a tax year. It can be reduced and must be allocated among associated CCPCs or members of a consolidated eligible Canadian public-corporation group. Expenditure above the limit can still earn the basic rate.

The SR&ED Expenditures Claim form. It describes the work carried out for each SR&ED project and reports the related expenditures, including the calculations for allowable and qualified expenditures.

An idea that fits the known facts and gives an investigation something to test. It might be a proposed explanation, method, or solution. Experiments or analysis test the idea and help the team decide what to try next.

A tax credit calculated on qualified SR&ED expenditures. It can reduce income tax payable, and some or all of it may be refundable, depending on the claimant and the applicable rules.

A credit that reduces income tax payable without paying out the unused balance as a refund. Subject to the carryover rules, an unused SR&ED ITC may be applied to income tax payable in another tax year.

A calculated amount used under the proxy method in place of actual SR&ED overhead and other expenditures when calculating the ITC. It is based on an eligible salary base, subject to limits. The PPA itself is not an income tax deduction.

A method that uses the prescribed proxy amount to represent overhead and other expenditures when calculating the credit. It avoids separately identifying those overhead costs for the SR&ED claim. The choice between proxy and traditional methods is made for each tax year and cannot be changed once the claim is filed.

The expenditures and other amounts used to calculate the SR&ED investment tax credit after the required adjustments. These can include additions, such as the prescribed proxy amount, and reductions for assistance or certain contract payments.

A credit whose eligible unused portion may be paid as a refund after it is applied against income tax payable. The amount that can be refunded depends on the claimant, expenditure type, and applicable rules.

New knowledge that advances the understanding of science or technology. Learning why a tested approach does not work can contribute to an advancement, even when the project does not reach its intended result.

A gap in scientific or technological knowledge that makes it uncertain whether a result can be achieved, or how to achieve it. It is assessed against the knowledge available within the business and from reasonably accessible public sources.

A term defined in the Income Tax Act for systematic investigation in science or technology through experiment or analysis. It covers basic research, applied research, experimental development, and certain directly supporting work, with specific exclusions.

An employee who does not deal at arm’s length with the employer, or who meets the tax definition of a specified shareholder. Special limits apply to the salary or wages and proxy salary base that can be included for these employees.

Related activities that together seek the same scientific or technological advancement. Its boundaries follow the investigation, which may be part of one business project or span several. A product name or internal cost centre does not, by itself, define an SR&ED project.

The deadline for submitting the required SR&ED claim information. For a corporation, it is normally 18 months after the tax year ends: 12 months after the corporate return is due. This later deadline does not extend the normal tax return filing due date.

Work in a listed category, such as engineering, programming, testing, or data collection, that directly supports basic research, applied research, or experimental development in Canada. Its amount, extent, and duration must match the needs of that work.

An investigation that defines a problem, proposes a hypothesis, plans and tests it through experiment or analysis, and draws logical conclusions from the results. An organized development process alone does not establish this requirement.

A method that identifies actual eligible overhead and other expenditures as part of the SR&ED expenditure calculation. The alternative is the proxy method, which uses a calculated amount for those costs when determining the credit.