The SHRED government program has been in place since 1986 to incent Canadian companies to perform technology innovation work. The official program name is “Scientific Research and Experimental Development”. It’s abbreviated to either SRED or SR&ED and it is pronounced “shred”. The Program is administered by the CRA and any Canadian firm performing qualifying R&D work is eligible to claim shred grants. The Canadian government awards $3 billion annually of these shred grants to 20,000 Canadian technology firms.
The Shred government program is particularly lucrative for small-medium Canadian incorporated firms which are majority Canadian-controlled. These firms, called Canadian Controlled Private Corporations, CCPCs, earn 68 cents of shred grants per dollar of qualifying salary expenditure in Ontario. Each province has a top-up grant which is awarded automatically once the company qualifies for its federal shred grants. The top-up grants vary by province, use this online calculator to determine your potential grants: https://www.g6consulting.ca/sred-calculator/
Shred grants are earned by companies for qualifying R&D expenditures of three different types. Salaries, materials and subcontractor expenses. Allowable material expenses are either scrap materials generated during testing and experimentation, or materials used to build prototypes. Prototypes claimed must be deemed valueless after testing. If prototypes enter production or are used for some commercial purpose after shred testing, the materials used aren’t eligible for shred grants.
The Canadian Shred government program is the most lucrative program of its type offered in the world. Many companies who innovate regularly receive shred grants annually. One of the key advantages of the shred government program is that the funding available is not capped. This means that companies do not have to apply for a limited number of grants or split a limited pool of funding. If a Canadian technology company performs qualifying work, they will receive all the shred grants they are entitled to. The shred government program is laid out in the Income Tax Act. If you meet the Program criteria, you will receive your funding.
One aspect that can be a negative about shred grants is the fact that they are awarded in arrears. Lots of people, especially people from a university research background, are familiar with forward looking grants. Researchers write proposals where “I will carry out X research, if you pay me Y dollars” . Most university and non-profit grant programs work in that manner, as does a well-known National Research Council tech innovation grant program called the Industrial Research Assistance Program (IRAP). The shred government program awards shred funding by fiscal year, in arrears. Firms can apply for SRED funding at the conclusion of their fiscal year. The ideal way to claim shred grants is to submit the required schedules and information with your T2 filing annually. Alternatively, companies can claim shred as a tax year amendment, as long as the claim is submitted within 18 months of the end of their fiscal year end.
G6 Consulting has been successfully helping companies access the shred government program since 2008. Here’s a link to a backgrounder with more information about shred grants: https://www.g6consulting.ca/about-sred/. Call us to see how we can help you take advantage of this lucrative program!