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How foreign companies can apply for Canada’s SR&ED program

The Scientific Research and Experimental Development (SR&ED) tax credit program was created for Canadians who were undertaking innovative work within the country. As Canada has grown aware of the numerous long-term perks of increasing R&D activities within the country, it is clear that such a program operates to offer help and support to these businesses, acting to ensure the continued existence of such a profitable economic unit. However, although the advantages of the SR&ED program are primarily perceived by Canadian businesses, there are a few ways that international corporations can still benefit from the SR&ED tax credit program. These advantages are realized through the use of a Canadian subsidiary or a non-controlling shareholding in a Canadian Controlled Private Corporation (CCPC).

If a firm files via a Canadian subsidiary, the subsidiary must perform all SR&ED tasks in Canada and compensate all Canadian taxable workers and suppliers. The corporation might claim a 20% non-refundable government subsidy that may be used to federal Canadian taxes and might even make them eligible for some provincial advantages.

Nonetheless, a foreign company's non-controlling position in a Canadian Controlled Private Corporation is one technique that improves the income offered via the SR&ED program (CCPC). By taking this path, the CCPC might be entitled to a tax credit of up to 35 percent on the first $3 million in qualified expenditure, as well as provincial incentives. Canadian firms who conduct R&D operations abroad can still claim the SR&ED tax credit, but only up to 10% of the salary and earnings in the SR&ED request can come from qualified operations outside. Employees doing SR&ED responsibilities must also be Canadian residents.

Canada encourages international enterprises to do R&D, as well as manufacturing and research, within the country. Furthermore, given Canada's desire to maintain such a connection with foreign enterprises, it appears appropriate for Canada to offer these firms incentives in the form of credits to encourage them to continue their activities. As a result, it is necessary to emphasize that Canada’s SR&ED program has some of the most generous tax credit incentives in the world for promoting innovation.

Eligibility to be CCPC vs. Non CCPC

  • Canadian company that has foreign investors
    To be considered a CCPC - the company must have 50% shares in a corporation BUT - must be controlled by Canadians (board of directors - voting shares - preferred cap table shares).
  • U.S. Corp opens up a Delaware Corporation
    Canadians own 50% of the shares in the Delaware corp. - Canadians have equal control over the Delaware corp. IP rests in the Delaware corp. but both US and Canadians can exploit it.
  • U.S. Corp opens a Delaware Corporation
    Delaware corp. hires a Canadian corp. that has 50 + % of ownership - Delaware corp. hires the Canadian corp. to develop IP - Delaware corp. keeps the IP.

 Written by: 

Shivam Bajaj  

Business Development

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