Every company out there is constantly asking themselves how they can remain competitive. Some of the ways in which businesses can achieve this are by continually working to raise profit, cut costs, develop the “Next Big Thing” and become more efficient. In this quest to be better than the competition, it’s often a good idea to look at various sources of funding that will help a business to get ahead.
Canada’s Scientific Research and Experimental Development (SR&ED) program is a very rewarding program for companies that work on process or product improvements, or technological development, and can result in companies receiving tax credits on eligible R&D expenditures.
In the intense global competition today, many Canadian companies manage to stay competitive via continuous innovation and research. The federal SR&ED Program can supplement a company’s investments in commercializing and developing technologies for sale in Canada and across the world. The program allows companies to deduct eligible SR&ED costs from income for tax purposes and reduces income tax bills by providing an investment tax credit. As companies constantly seek to enhance their technology by for example using new materials and improving designs, the extra funding can help them remain on the front line of technology.
The SR&ED Program
The eligibility of an SR&ED project is determined via three criteria:
When an obstacle exists, it implies that there are no known procedures or methods that can be used to solve a problem in an existing science field. Work that is eligible must go above and beyond the existing body of knowledge.
The expenditure claimed must provide evidence of a scientific process. It must involve an analysis, experimentation, or systematic investigation by qualified personnel.
The aim of the project must be to resolve uncertainty and advance the current understanding of science or technology.
Common activities that meet these criteria may include:
- Improving existing processes or developing new ones
- Improving existing products or developing new ones
- Reducing waste products
- Data collection and testing
- Developing or designing software
- Creating prototypes
Some small businesses however find that the SR&ED process that was once relatively easy has become increasingly complicated as the CRA (Canada Revenue Agency) started asking more questions about the work that had been done. The interpretation by the CRA of what it sees as eligible appears to be much more restrictive, and a company’s claims may ultimately become bogged down in audits.
When a small company adds up the costs of filing claims, the back and forth during audits, and the employee time required, applying for credits did not seem to make economic sense any longer. This then leads to the company scaling back its ambition, leading to fewer employees and smaller budgets focused on the testing and research required to maintain its competitive edge.
In this scenario, it is most often worthwhile to explore the possibility of using an SR&ED consulting company to manage the claims on your behalf, rather than trying to do it in-house.
The Value of Experience and Knowledge
When filing for SR&ED claims, it’s crucial to thoroughly understand the program requirements. Business management has to focus on their company, and this often leads to them not having the time to learn everything they need to know about the SR&ED program’s eligibility requirements, keeping abreast of program changes, and what is needed for technical project descriptions.
Lacking this expertise may result in your company not getting potential funding that will give you the competitive edge you need.
Working with an experienced and knowledgeable consultant will remove the pressure of having to know the SR&ED program’s intricacies. They will act as an extension of the team and a resource throughout the process, thereby ensuring that you claim for all possible costs which will in turn enable you to receive the highest credit that your company is eligible for.
Find Out How Much Money You Can Recover From The CRA
Book a conversation with one of our SR&ED tax credit experts.
Fill out the form to schedule a conversation, where we can help identify:
- What projects qualify and which R&D expenditures are eligible
- An estimate of the total return you can expect
- How to maximize the size of a claim & and to optimize for the success of that claim
- Potential eligibility for additional Government funding programs
- If you are already claiming, we will analyze your past claims to determine if anything was missed