SRED written review planWe asked the CRA directly if NPOs can claim SR&ED.
Their answer? No. Is there a way to work around this?

We were recently asked if a Non-Profit Organization (NPO) can claim SR&ED tax credits. An NPO is defined by the Income Tax Act (ITA) (paragraph 149(1)(l)) as,

“a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada”

Can an NPO claim SR&ED?

The miscellaneous exemptions section of the ITA states that “No tax is payable under this Part on the taxable income,” and includes charities (paragraph 149(1)(f)) and NPOs (paragraph 149(1)(l)). This indicates charities and NPOs are both exempt from income tax. An NPO cannot be a charity, nor can a charity be an NPO. Charities apply for registration with the Canadian Revenue Agency (CRA) and, once accepted, are exempt from income tax. NPOs do not have to register with the CRA for tax exemption and, as stated in the Income Tax Guide to the NPO Information Return (Chapter 1, Section 5), “cannot issue tax receipts for donations or membership fees contributed.” Charities can issue donation receipts.

NPOs, although exempt from income tax, may also have to file an NPO Information Return (Subsection 149(12)) if it meets the following criteria (Income Tax Guide to the NPO Information Return (Chapter 1, Section 5)):

  • it received or was entitled to receive taxable dividends, interest, rentals, or royalties totaling more than $10,000 in the fiscal period;
  • the total assets of the organization were more than $200,000 at the end of the immediately preceding fiscal period (the amount of the organization’s total assets is the book value of these assets calculated using generally accepted accounting principles); or
  • it had to file an NPO information return for a previous fiscal period.

This causes confusion as to whether an NPO would then be eligible to claim SR&ED tax credit for any qualifying work. We investigated by calling the CRA’s business enquiries line directly to get a direct answer. The tax specialist at the CRA’s answer was clear: No, NPOs cannot make a claim for an SR&ED tax credit.

Why not?

According to the CRA’s business enquiries line, only Canadian Controlled Private Corporations (CCPCs) can claim Income Tax Credits (ITCs) as they have taxable income. NPOs predominantly don’t pay income tax and cannot claim ITCs, nor can an NPO claim for any work that otherwise may be eligible for SR&ED.

This appears to be similar to the CRA’s policy on partnerships (Section 4.8) – “Since a partnership is not a taxpayer, it cannot earn an ITC.”

Are there exceptions to this?

NPOs may sometimes be confused with Non-Profit Corporations for Scientific Research and Experimental Development (Non-profit SR&ED corporations). Paragraph 149(1)(j) of the ITA 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)”

The CRA’s SR&ED Filing Requirements Policy describes a Non-profit SR&ED corporation’s expenditure reporting deadlines for inclusion in SR&ED claims, and the CRA’s Third Party Payments Policy sets out exactly how a Non-profit SR&ED corporation is determined.

The CRA’s Third Party Payments Policy also lists these “approved entities,” which are as follows (the CRA advise that “if an entity is not listed, contact the entity in question with respect to their status as an approved entity”):

  • Alberta Research Council, Edmonton, Alberta
  • Canadian Arthritis Network, Toronto, Ontario
  • Centre des technologies du gaz naturel (Québec) Inc., Montréal, Quebec
  • Centre for Cold Ocean Resources Engineering, Memorial University of Newfoundland, St. John’s, Newfoundland and Labrador
  • Children’s Hospital of Eastern Ontario (CHEO) Research Institute Trust, Ottawa, Ontario
  • Field Crop Development Centre, Alberta Ministry of Agriculture, Food and Rural Development, Edmonton, Alberta
  • Genesis Research Foundation, Toronto, Ontario
  • *Harvard University, Massachusetts, U.S.A.
  • L’institut de recherche et de développement en agroenvironnement (IRDA; Research and Development Institute for the Agri-Environment), Quebec
  • London Health Sciences Centre Research Inc., London, Ontario
  • McGill University-Montreal Children’s Hospital Research Institute, Montréal, Quebec
  • National Research Council of Canada, Ottawa, Ontario
  • Ottawa Health Research Institute, Ottawa, Ontario
  • Research Branch, Agriculture and Agri-Food Canada, Ottawa, Ontario
  • The Arthritis Research Centre Society of Canada, Vancouver, British Columbia
  • The John P. Robarts Research Institute, London, Ontario
  • The Lawson Research Institute, London, Ontario
  • Toronto Hospital Research Institute, Toronto, Ontario
  • *University of North Dakota, North Dakota, U.S.A.

*for purposes of a deduction under paragraph 37(2)(b) in the Income Tax Act.

Some NPOs may also qualify as CCPCs.

What’s a CCPC?

The CRA’s web page discussing types of corporation states a corporation is a CCPC if it meets the following criteria at the end of the taxation year:

  • It is a private corporation.
  • It is a corporation that is resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year.
  • It is not controlled directly or indirectly by one or more non-resident persons.
  • It is not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700 of thethe Income Tax Regulations);
  • It is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada.
  • It is not controlled directly or indirectly by any combination of persons described in the three preceding conditions.
  • If all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a designated stock exchange, were owned by one person, that person would not own sufficient shares to control the corporation.
  • No class of its shares of capital stock is listed on a designated stock exchange.


NPOs are exempt from income tax and so usually cannot qualify for SR&ED tax credits. Non-profit SR&ED corporations are similar to NPOs but will have been set-up with the sole purpose of, “carrying on or promoting scientific research and experimental development.” Some NPOs may pay taxes and so may become a CCPC and be eligible for the following:

“Generally, a CCPC can earn a refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures, up to a maximum threshold of $3 million. This 35% ITC is 100% refundable on qualified SR&ED expenditures and 40% refundable on qualified SR&ED capital expenditures incurred before 2014.

A CCPC can also earn a non-refundable ITC at the basic rate of 15% on an amount over the $3 million threshold.

A CCPC that meets the definition of a qualifying corporation can earn a refundable ITC at the basic rate of 15% on an amount over the $3 million threshold, of which 40% can be refunded.” (Claiming SR&ED tax incentives, Section 3 – Who can claim the incentives).


Want to learn more about SR&ED? Contact us directly or start a discussion on our LinkedIn group. Better yet, sign up for the Comprehensive Guide to SR&ED.


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