Get In On the Benefits of SR&ED
In 2006, over $3 billion was refunded back to Canadian companies through the SR&ED program.
Did you know that Canadian companies can get up to 41.5% of their R&D expenses reimbursed through the federal and provincial governments? Companies are at a huge competitive disadvantage if they do not take advantage of SR&ED returns. SR&ED refunds are often reinvested to hire more staff, and to develop new and innovative products, in order to maintain a competitive advantage in the Canadian economy.
Although the Canadian Scientific Research & Experimental Development (SR&ED) program is one of the most beneficial R&D incentive programs in the world, many businesses just simply aren't aware of its immense benefits. And companies who are aware of the program often dismiss it because they assume that they don't qualify.
Are you eligible for the SR&ED incentive program? If you can answer "yes" to any of the following questions, then you may qualify for the SR&ED program:
- Have you developed a new product?
- Have you improved an existing product?
- Have you improved an existing manufacturing process?
- Have you conducted in-house R&D?
- Have you developed software in-house?
SR&ED Criteria
The SR&ED program is a science-based program. As such, the Canadian Tax Act specifically defines eligible SR&ED work as work that adheres to the following technical criteria:
1. Demonstrates technological uncertainty in a field of science, above and beyond a technological baseline.
2. Demonstrates a technological advancement in a field of science.
3. Exhibits experimental and systematic development.
In a nutshell, what the government is looking for is any activity that advances a scientific knowledge base in a technical manner.
Identifying SR&ED-Eligible Projects
Because the SR&ED program is a scientific program, it is important to address the technical aspects of your work. Accountants need to be provided with a technical narrative and a detailed breakdown of qualified expenditures in order to properly file or amend a tax claim. A trained engineer should be able to decipher the technical scope of the eligible SR&ED work, and identify eligible expenditures according to the three SR&ED criteria. Qualified SR&ED consulting firms such as Northbridge Consultants often provide the services of engineers in order to:
(1) Help assess a company’s SR&ED eligibility,
(2) Assist companies prepare the technical documents necessary for filing, and
(3) Assist with the post-claim CRA review process.
Example: CRA guidelines specifically dictate that regular business activities and routine engineering are not eligible for SR&ED. The examples in the table below will help illustrate the difference between routine engineering and SR&ED activities.
Make sure that the opportunities offered by the SR&ED incentive program are fully explored, because this program is one of the most beneficial in the world. Claiming for SR&ED is a pareto-efficient process whereby your company benefits through the increased level of financing available, and the government benefits because of the jobs created, due to its investment in your company.
| Engineering vs. SR&ED Activities | |
| Routine Engineering (i.e. standard practice by trained staff) | Potentially SR&ED (i.e. work that may adhere to the 3 SR&ED criteria) |
| • The rewriting of code to make it Y2K compliant | • The development of an object-oriented database management system |
| • Installation of electrical wiring according to code | • Development of a new textile with special properties, i.e. width, thickness, tensile strength |
| • Configuration of a stamping machine to allow for its intended use | • The development of a method to mould a tail light with multiple colours |
