SR&ED credits

The Scientific Research and Experimental Development program is a federal tax incentive administered by the Canada Revenue Agency that provides deductions and, for many smaller Canadian-controlled private corporations, refundable credits for eligible research and development work. Several provinces run their own parallel credits on top of the federal program, so the total benefit can vary depending on where the work was done.

Why buyers scrutinize SR&ED claims

• Eligibility depends heavily on documentation and technical narrative, and a claim that hasn’t been reviewed by the CRA carries some risk of being reduced or denied later.
• A share sale can affect a target’s status as a Canadian-controlled private corporation, which affects eligibility for the more generous refundable credit rate going forward.
• Outstanding SR&ED claims are sometimes treated as a receivable in the deal, but only once the buyer is satisfied the claim is well supported.

What this means for the purchase price

Because a CRA reassessment can claw back credits after the fact, buyers commonly ask for supporting documentation, prior-year assessment history, and sometimes an indemnity covering any SR&ED claims made before closing.