How to Claim SR&ED for Individuals

How to Claim SR&ED for Individuals

SR&ED tax credits are often discussed in terms of Canadian-controlled private corporations (CCPCs) and foreign-owned corporations applying for the program. However, individuals, partnerships, and trusts can apply for SR&ED funding under a qualifying project. For an individual, the process is not that much different from claiming SR&ED as a corporation.

Just like you would if you were a CCPC, as an individual, you start with having an eligible SR&ED project. An SR&ED project attempts to achieve a scientific or technological advancement, and that does so through a systematic investigation or search using analysis or experimentation.

The success, failure, marketability, or commercial significance of a project is irrelevant to its SR&ED eligibility. This is not where to focus on in an SR&ED claim. As an individual, you must be clear in the technical aspects of a project and be prepared to author a technical narrative alongside supporting documentation demonstrating how the work performed is eligible. If you pass the criteria, you will be eligible for an SR&ED tax credit.

Here is everything you need to know about how to claim SR&ED for individuals:

How to Prepare SR&ED Claim

Some SR&ED projects may not be contained in a single year. However, in an SR&ED claim, an individual only applies for what was completed within the year’s duration. You may have multiple SR&ED projects or elements of a project that are not eligible that must be separated and denoted as ineligible in your claim. This must all be organized before filling out Form T661.

1. Calculate eligible SR&ED expenditures.

This part can be a lot easier for an individual than it can for a corporation. Individuals who qualify for SR&ED funding tend to work on projects that are a lot smaller and simpler, particularly around expenses.

Expenditures you can claim include a percentage of salary or wages, materials purchased and consumed, any contracts for SR&ED work, and third-party payments.

2. Build up a catalogue of technical documents.

As an individual, this may be harder than it is for some corporations. You will need technical information to support an SR&ED claim. This is why it’s so important to document the project’s ongoing, such as project progress, work conducted on specific days, and what work was performed.

You can also include photographs and videos if you have them. An applicant needs adequate evidence to support what they have written into their SR&ED claim.

3. Keep detailed financial records for SR&ED.

In addition to technical documentation, you need complete and organized financial records. This will include financial statements, ledgers, journals, receipts, and general correspondence relating to the work performed.

Just like one cannot make claims on their income tax without evidence, if there is an audit or a review of your claim, you will be asked to produce financial documents to support what was written.

4. Fill in Form T661 SR&ED expenditures claim

Form T661 is the primary form used to claim SR&ED funding. It is the same form filed by corporations. Individuals will, in large part, fill out Form T61 identically to how it would be filled if you were a corporation. Instead of a business number, though, an individual will enter their social insurance number.

Detail the scientific or technological content of your project. Calculate your deductible expenditures and the expenditures that qualify for an ITC. Be sure to review the checklist included with the application form to ensure the claim is complete before filing it.

5. Fill in Form T2038 investment tax credit

Form T2038 is a separate form highlighting any investment tax credits or ITCs you expect to qualify for.

How to File SR&ED Claim

Ensure everything is completed on Form T661. When you file Form T661, you will want to file it alongside your income tax return if it has not already been filed. After you file your claim, you should have a response within 60 calendar days as to whether your claim has been approved, denied, selected for further review, or if more information is being requested from you. Every SR&ED claim is carefully checked, and any that do not meet its criteria are rejected.

For an individual, it is best to file your SR&ED claim within six months of the end of the year you’re claiming for. If you need to make amendments or add information later, this will provide enough time. The CRA is very strict with the deadline to submit a claim. It will not be accepted if you submit a claim after the deadline.

As an individual or CCPC, you must file for the investment tax credit up to 12 months after your income tax return. After that time, you forfeit any SR&ED ITCs that could have been claimed.

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