SR&ED for Clean & Sustainable Technology
Canada's clean technology sector continues to expand as businesses develop new solutions for energy production, energy storage, transportation, manufacturing, carbon management, waste reduction and environmental sustainability. As a strong innovator and producer of clean technology solutions, Canada is well positioned to seize the opportunities globally. Canadian clean technology developers have already proven their capacity for practical, real-world, results-driven innovation. These solutions are key to supporting Canada's transition to a low-carbon economy and enabling other industries to become cleaner, with improved environmental outcomes and competitiveness.
For companies investing in the development or improvement of clean and sustainable technologies, Canada's tax incentive system can provide significant support. Scientific Research and Experimental Development (SR&ED) incentives can help companies recover a portion of eligible research and development expenditures, while Canada's newer Clean Economy Investment Tax Credits (ITCs) support qualifying investments in clean technology, manufacturing, hydrogen, carbon capture and clean electricity.
Understanding which activities and expenditures may qualify and how different incentives apply to a project is an important part of maximizing available government support. At EVAMAX, we specialize in assisting our clients with access to these opportunities for Tax Incentives, Grants & Funds.
Can Clean and Sustainable Technology Development Qualify for SR&ED?
Clean and sustainable technology does not automatically qualify for SR&ED simply because a project provides an environmental benefit or contributes to sustainability. To qualify for SR&ED, the work must meet the program's requirements for technological advancement and systematic investigation or search through experimentation or analysis.
In practical terms, this means a company may be undertaking SR&ED when it is attempting to resolve a technological uncertainty that could not readily be addressed using existing knowledge, technology, techniques, or practices. The company must then conduct a systematic investigation to address uncertainty and generate technological knowledge. This can occur across many areas of clean and sustainable technology.
Examples of Potential SR&ED Activities
Clean technology companies may encounter technological challenges that involve SR&ED in areas such as:
Energy Storage
- Improving battery energy density, performance or cycle life
- Addressing previously unresolved charging, degradation or performance limitations
Renewable Energy
- Addressing technical challenges associated with integrating renewable energy into electrical systems
- Improving the performance of renewable energy equipment under challenging operating conditions
Hydrogen Technologies
- Addressing technical challenges related to hydrogen storage or processing
- Developing new approaches to reduce unwanted by-products or improve process performance
Carbon Capture and Management
- Testing new materials or technologies for capturing CO₂
- Developing technologies to integrate carbon capture into industrial processes
Waste and Circular Economy Technologies
- Improving separation and material recovery technologies
- Improving recovery efficiency where existing processes do not provide the required results
Water and Environmental Technologies
- Developing new environmental monitoring systems
- Improving treatment performance under previously unresolved conditions
Energy Efficiency and Sustainable Manufacturing
- Reducing energy consumption while maintaining required production performance
- Developing technologies to reduce waste, emissions or resource consumption
This list is not exhaustive. The key consideration is the technological work being performed and the challenges the company is attempting to resolve, rather than simply the industry's environmental focus. A clean technology project can contain both eligible R&D activities and activities that do not qualify for SR&ED.
What Type of Activities May Qualify?
The most important question is not simply whether a project is "green" or environmentally beneficial.
Instead, consider:
- Is your company attempting to develop or improve a technology?
- Are you facing a technological uncertainty that cannot readily be resolved using existing knowledge?
- Are you conducting experiments, testing or analysis to address that uncertainty?
- Are you developing prototypes or experimental processes?
- Are you improving the performance, efficiency, reliability or functionality of an existing technology?
Clean Economy Investment Tax Credits
SR&ED is not the only federal tax incentive available to businesses developing or investing in clean technologies.
The Government of Canada has introduced a suite of Clean Economy Investment Tax Credits designed to encourage investment in Canada's transition to a low-carbon economy.
Depending on the nature of a company's project, relevant incentives may include:
- Clean Technology Investment Tax Credit
- Clean Technology Manufacturing Investment Tax Credit
- Clean Hydrogen Investment Tax Credit
- Carbon Capture, Utilization and Storage Investment Tax Credit
- Clean Electricity Investment Tax Credit
These incentives generally focus on qualifying investments and property rather than the experimental R&D work itself.
SR&ED vs. Clean Economy Investment Tax Credits
Although SR&ED and the Clean Economy ITCs can both support clean technology businesses, they are designed for different purposes.
A single business may therefore have opportunities under more than one program, depending on the activities and expenditure involved. However, eligibility must be assessed separately for each incentive, and the same expenditure or property cannot simply be claimed under every available program.
Dive deeperTax incentives are only one part of the funding landscape.
Depending on the company's location, size, activities and project objectives, additional government programs may have more support to offer. Grants such as:
Program availability and eligibility requirements can change frequently, making it important to assess available programs based on the company's specific project and circumstances.
How EVAMAX Can Help
Navigating Canada's clean technology incentives can be complex. A single project may involve R&D activities, capital investment, manufacturing, commercialization and expansion, each of which may have different eligibility requirements.
EVAMAX can help you assess your project and identify the SR&ED, tax credit, grant and funding opportunities that may be available to your business.