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Non-Profit SR&ED Corporations – What are they?

Updated to Reflect New Policies (2022) 
*** Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. *** 
Non-Profit SR&ED Corporations - What are they?
Non-Profit SR&ED Corporations – What are they?

There is a little-known corporate structure available to help facilitate research and development (R&D): Non-Profit Corporations for Scientific Research and Experimental Development (Non-profit SR&ED corporations). These are separate from Non-Profit Organizations (NPOs). This post explores non-profit SR&ED corporations starting with CRA definition, SR&ED filing requirements, third-party payments, and some information on how to become a non-profit SR&ED corporation.

Non-Profit SR&ED Corporations Defined

Non-Profit Corporations for Scientific Research and Experimental Development (Non-profit SR&ED corporations) are a separate category from non-profit organizations (NPO). Paragraph 149(1)(j) of the Income Tax Act defines a Non-profit SR&ED corporation as:

“a corporation that was constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development, no part of whose income was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof, that has not acquired control of any other corporation and that, during the period,

(i) did not carry on any business, and

(ii) expended amounts in Canada each of which is

  • (A) an expenditure on scientific research and experimental development (within the meaning that would be assigned by paragraph 37(8)(a) if subsection 37(8) were read without reference to paragraph 37(8)(d)) directly undertaken by or on behalf of the corporation, or
  • (B) a payment to an association, university, college or research institute or other similar institution, described in clause 37(1)(a)(ii)(A) or 37(1)(a)(ii)(B) to be used for scientific research and experimental development, and

the total of which is not less than 90% of the amount, if any, by which the corporation’s gross revenue for the period exceeds the total of all amounts paid in the period by the corporation because of subsection 149(7.1)”1

NPOs are exempt from income tax and so usually cannot qualify for Scientific Research and Experimental Development (SR&ED) tax credits. Whereas non-profit SR&ED corporations may report their SR&ED eligible expenditures, while they are often unable to receive SR&ED investment tax credits (ITCs) due to their non-profit status, their donors may be able to apply for an SR&ED tax credit in the year their contribution was made. We will delve further into how non-profit SR&ED corporations and SR&ED ITCs work together below.

SR&ED Filing Requirements

Similar to other corporate filing deadlines, non-profit SR&ED corporations have six months after the end of the tax year in which SR&ED expenditures are incurred to include the SR&ED expenditure with their T661; however, they cannot claim an ITC. From the SR&ED Filing Requirements Policy:

6.3.1 Non-profit SR&ED corporation

A non-profit SR&ED corporation’s SR&ED reporting deadline for expenditures is its filing due date or the income tax return. This means a non-profit SR&ED corporation has up to six months after the end of the tax year in which an SR&ED expenditure was incurred to include the SR&ED expenditure with the prescribed information in respect of the expenditure on Form T661, or it will be subject to a penalty. A non-profit SR&ED corporation cannot claim an ITC. For information on a non-profit SR&ED corporation, please refer to the Third-Party Payments Policy.2

From the Third-Party Payments for SR&ED Policy:

A claimant can make third-party payments to the types of entities listed below (subject to the requirements stated in sections 2.1.1 to 2.1.3).
D entity – Non-profit-SR&ED corporations resident in Canada and exempt from tax under paragraph 149(1)(j) of the Income Tax Act;
F entity – Non-profit-SR&ED corporations resident in Canada and exempt from tax under paragraph 149(1)(j) of the Act, for SR&ED that is basic or applied research carried on in Canada.3

The above policy indicates that a third party can make payments to non-profit SR&ED corporations for SR&ED eligible work.  These third parties can claim SR&ED ITCs for their contributions to non-profit SR&ED corporations.

What is a Third-Party Payment for SR&ED?

A third party payment is different from a contract payment and recorded separately on a T661.  The Third-Party Payments Policy explains:

The term third-party payments is not specifically defined in the Act. A third-party payment is generally a payment made to an entity to be used for SR&ED carried on in Canada, that is related to the claimant’s business and the claimant must be entitled to exploit the results of the SR&ED. For this policy, such payments are those made to third-party entities for SR&ED as described in subparagraphs 37(1)(a)(i.1) [an A entity], 37(1)(a)(ii) [B to E entities] and 37(1)(a)(iii) [an F entity] of the Act.4

Non-profit SR&ED corporations fall into the categories of D and F entities (further described below).  Those who made contributions may receive an SR&ED ITC in the year a contribution is made.  The Third Party Payments Policy further explains:

Unlike contract expenditures for SR&ED performed on behalf of the claimant, third-party payments, with the exception of payments to an A entity, become eligible for the SR&ED tax incentive at the time the payment is made (cash basis), rather than at the time the SR&ED is performed (accrual basis).5

How does one qualify as a Non-profit SR&ED corporation?

It is a lengthy process to qualify as a non-profit SR&ED corporation.   A letter must be sent to the CRA requesting Non-Profit SR&ED status with documentation to illustrate that they have met the guidelines listed below.  The determination cannot be made until the corporation’s tax filing has been received and activities have been reviewed.  In this real-world letter from 2013, the CRA took six months to respond to the request of the organization to be designated as a non-profit SR&ED corporation.  Ultimately, the CRA did grant approval but also stated that changes in the organization could impact their status.6

The Third Party Payments Policy explains the requirements corporations must meet:

11.4.2 D and F entities – Non-profit-SR&ED corporation criteria

The following criteria must be met by a corporation in order to be considered a non-profit-SR&ED corporation in a tax year:

  • The corporation’s activities must be carried on without the purpose of gain for its members. Any profits or other accretions shall be used in promoting the corporation’s objectives. No part of the income may be payable to or otherwise available for the personal benefit of any member thereof.
  • The directors and members, including any director or member who also serves as an officer, shall serve in that capacity without remuneration. No director, member, or officer shall directly or indirectly receive any profit from his / her position as director, member, or officer. However, it is permitted that a director or officer may be reimbursed for reasonable expenses incurred by him / her in the performance of his / her duties.
  • The corporation must not acquire control of any other corporation nor will it carry on any business, as the term business is used in the Act.
  • The objects of the corporation must be to only carry on and/or promote SR&ED. The SR&ED activity may be directly undertaken by, or on behalf of, the corporation or by a or C entity (as described in section 2.1).
  • The amounts to be expended in Canada on SR&ED must not be less than 90% of the corporation’s income for the period.7

For a full list of approved entities please refer to the Third-Party Payments Policy.


Non-profit SR&ED corporations conduct meaningful work that can be applied to many different businesses.  If you contribute to one of these organizations please make sure you follow the guidance set forth in the Third Party Payments policy, as well as, the SR&ED Filing Requirements Policy.  If you would like more information on non-profit organizations and SR&ED please see our post Can Non-Profit Organizations Claim SR&ED Tax Credits?.

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Show 7 footnotes

  1. Legislative Services Branch. (2020, July 27). Income Tax Act. https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-149.html
  2. Canada Revenue Agency. (2020, November 26). SR&ED Filing Requirements Policy: Non-profit SR&ED corporation. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/filing-requirements-policy.html
  3. Canada Revenue Agency. (2022, March 30). Third Party Payments Policy: Legislation. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/third-party-payments-policy.html
  4. Canada Revenue Agency. (2022, March 30). Third Party Payments Policy: Policy. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/third-party-payments-policy.html
  5. Canada Revenue Agency. (2022, March 30). Third Party Payments Policy. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/third-party-payments-policy.html
  6. 16 January 2013 External T.I. 2012-0454441E5 – “Approved” Status. Retrieved October 9, 2020, from https://taxinterpretations.com/cra/severed-letters/2012-0454441e5
  7. Canada Revenue Agency. (2022, March 30). Third Party Payments Policy: D and F entities – Non-profit-SR&ED corporation criteria. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/third-party-payments-policy.html

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