Summary of Pharmaceutical Survey Findings on R&D Spending and Investments by Rx&D Members - 2010 - Appendix 3

2010 definition of SR&ED Pursuant to Subsection 248(1) of the Income Tax Act (Canada)

"scientific research and experimental development" means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is

1. basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,
2. applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or
3. experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,

   and, in applying this definition in respect of a taxpayer, includes

4. work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer,

   but does not include work with respect to

5. market research or sales promotion,
6. quality control or routine testing of materials, devices, products or processes,
7. research in the social sciences or the humanities,
8. prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,
9. the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,
10. style changes, or
11. routine data collection;"

In general, there have not been significant changes to the definition of SR&ED since 1987. In summary, the ability to include limited additional salaries of Canadian employees that spend time outside of Canada on eligible activities has been added as well as the ability to include capital and lease costs that are used between 50% to 90% of the time on SR&ED activities (i.e. as opposed to just those which are used greater than 90% of the time).

In general, the following are types of eligible expenditures for SR&ED purposes:

• Salaries of Canadian personnel directly engaged in SR&ED eligible work performed in Canada and limited outside Canada (i.e. maximum of 10% of total eligible SR&ED labour costs in Canada)
• Salaries of Canadian personnel directly supporting SR&ED eligible work performed in Canada for:
  • Engineering
  • Design
  • Operations Research
  • Mathematical Analysis
  • Computer Programming
  • Data Collection
  • Testing
  • Psychological Research
• Contract payments made to Canadian entities: commercial laboratories, private practitioners, consultants, manufacturing and other companies, or other research‐performing organizations
• Materials consumed or transformed during the performance of SR&ED eligible work in Canada
• New capital equipment or leased equipment used 50% or more of its useful life dedicated to SR&ED

Date modified:

2012-05-11