History of SR&ED

“If you watch close, history does nothing but repeat itself. What we call chaos is just patterns we haven’t recognized. What we call random is just patterns we can’t decipher.” ― Chuck PalahniukSurvivor

We’ve read all these books so you don’t have to!

The history of SR&ED may be as complicated as the current SR&ED application process—well, almost. To understand where things are going, especially in matters of public policy, one needs to properly comprehend the past. That’s why we’ve painstakingly delved into hundreds of documents and begun assembling this report.

We have divided the timeline into four eras, based on significant milestone events:

1944 – 1986


In this period, traditional tax measures such as the tax credit and the deduction were introduced and have persisted in the Income Tax Act up until today.  Other tax measures were introduced but were found to be deficient to their intended purpose.  Overall, three different overhauls occurred during this period, with each attempting to close tax loopholes related to the earlier iterations.  The precursor to the modern day SR&ED program, the Industrial Research and Development Incentives Act (IRDIA), was also first created during this period but was found to be inefficient in attaining its goals and was closed in 1975. In short, this period saw the federal government trying a litany of approaches before settling on the basis of the modern SR&ED program circa 1986, which would then be continuously refined up to the present.

Key Dates

1944 – All current expenditures and one-third of capital expenditures on scientific research can be deducted.

1961 – Capital expenditures incurred in Canada for research become fully deductible.

1962 – Corporations can claim an additional tax deduction of 50% for incremental current and capital expenditures on scientific research.

1967 – Elimination of the additional tax deduction of 50%.  Coming into force of the Industrial Research and Development Incentives Act (IRDIA), under which the federal government awards grants covering 25% of current and capital expenditures in respect of SR&ED.

1975 – IRDIA program is eliminated.

1977 – Corporations can claim an SR&ED tax credit of between 5% and 10%, depending on the size of the firm and the location of SR&ED activities.  The value of the tax credit must be included in the taxable income.

1978 – Additional 50% deduction for incremental current and capital expenditures (base:  average of 3 preceding years).  The tax credit rate is raised to 10% in general, 20% in Atlantic and Gaspé regions, and 25% for small CCPCs.

1983 – The additional 50% deduction for incremental RS&ED is replaced by a 10% increase in the tax credit rates:  basic rate (20%), Atlantic and Gaspé (30%) and small CCPCs (35%).  The 100% deduction can be carried forward indefinitely and unused tax credits can be carried back for 3 years or forward for 7 years.  Partial refundability of unused tax credits is introduced with 40% for small CCPCs and 20% for the others.  The Scientific Research Tax Credit (SRTC) is introduced.

1985 – The SRTC is eliminated due to multiple fraud convictions. See our article [INSERT HERE].

1986 – 1994


This period was marked by fine-tuning of the tax credit and deduction so as to facilitate their use and simplify the administration process for the modern SR&ED program. This was achieved by redefining the meaning of “scientific research and experimental development” according to the Income Tax Act. With respect to streamlined administration, a time limit was set in 1994 with respect to carrying forward SR&ED tax credits for previous years.

Key Dates

1987 – New terminology of SR&ED for income tax purposes and buildings excluded from the definition.  To qualify for tax incentives, 90% of expenditures must be attributable to SR&ED.  Carry-forward provisions for unused tax credits are increased to 10 years.  Refundable tax credit for large corporations is eliminated.

1992 – A proxy can be used to calculate the portion of overhead expenses and administrative costs directly attributable to SR&ED.  Expenditures on machinery and equipment primarily used for SR&ED (more than 50%) also qualify for the tax credit.

1993 – The tax credit available to small corporations is extended to CCPCs with taxable incomes of between $200,000 and $400,000.

1994 – The special 30% tax credit rate applicable in the Atlantic and Gaspé regions is eliminated.  The exemptions applying to sole-purpose SR&ED performers are eliminated.  A time limit is set for identifying SR&ED expenditures incurred in previous years.

1995 – Changes are made with respect to information technology expenditures, contract research and non-arm’s length transactions, third-party payments, and unpaid amounts.

1995 – 2002


This period has characteristically focused on further fine-tuning of policies surrounding SR&ED tax credits and deductions, achieved through implementing various policies and mechanisms designed to limit SR&ED funding to purposes amenable to the goals of the SR&ED program. The government extended eligibility to all businesses investing in information technology R&D, including financial institutions. Changes were made to the way SR&ED contracts were handled, as well as payments to third parties for SR&ED. In 1995, the federal government limited the tax credits receivable for expenditures related to SR&ED not yet incurred. As well, it was ensured in 1998 that tax credits would be provided on only the net cost of SR&ED, as opposed to the sale cost of the product of an SR&ED project.

Key Dates

1998 – Eligible SR&ED expenditures must be reduced by the revenue gained from the sale of a product of an SR&ED project.  A review of the administration of tax incentives for SR&ED is undertaken and a new, simplified form for the tax credit is developed.

2000 – Provincial “super-deductions” must be excluded from the calculation of eligible expenditures for federal SR&ED tax purposes.

2003 – present


This period has characteristically focused on both widening the reach and enhancing the accessibility of the SR&ED tax system. For example, among many similar measures undertaken, the small business limit for a CCPC was raised to $300,000 from $200,000 in 2003 and further raised to $400,000 in 2006. The carry-forward period for the SR&ED tax credit was extended to 20 years in 2006. In summary, the past decade has seen a relaxing of strictures up until about 2011, when discussions between academics and the federal government suggested another review of strategic limits to the program.

Key Dates

2003 – The small business limit for a CCPC is raised from $200,000 to $300,000 and the tax credit is extended to businesses with taxable incomes ranging from $300,000 to $500,000.

2004 – Unconnected small businesses engaging in SR&ED do not have to share the enhanced 35% tax credit.

2005 – Tax incentives are extended to SR&ED performed in Canada’s Exclusive Economic Zone.

2006 – The small business limit for CCPCs is increased to $400,000 and the $2 million annual SR&ED expenditure limit can be reduced when taxable income for the previous taxation year is between $400,000 and $600,000.  The carry-forward period of the tax credit is extended to 20 years.

What are your thoughts on the history of SR&ED? Have we missed any key milestones? Let us know!

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