Category Archives: Blog

Amazing R&D; Research and Development Inspiration

Is there such a thing as unlimited energy? This video is inspiring and explains the vision of fusion energy in an easy to understand way. Lockheed Martin Skunk Works®, is making advancements in the development of fusion energy, the ultimate form of renewable power.

Enhanced Capital Recovery is working to inspire great Research and Development and spread the word about amazing R&D that’s happening right now.

As a top tier SR&ED Consulting firm serving clients across Canada, Enhanced Capital Recovery’s business is maximizing government incentives in the areas of Scientific Research and Experimental Development (SR&ED) tax credits for our clients. Since we are a highly specialized SR&ED firm, we offer clients depth of experience, important strategic relationships and insights, a systematized approach and an effective tracking and follow up system.

How to Avoid a SR&ED Claim Review

It may not always be possible to avoid a SR&ED claim review, but there are steps you can take to minimize the chances of one. By understanding why claims are reviewed and what terminology are red flags that can trigger a review, you will be doing your part to make a review unnecessary from the CRA’s perspective.

It’s important to keep in mind that a review of your SR&ED claim does not trigger a full tax audit. A SR&ED review is an isolated review of the claim only. Although SR&ED claim reviews are becoming increasingly common, as long as you understand the process and document your claim properly, there is no reason to fear a review.

Why are SR&ED reviews done?

There are some reasons for a SR&ED review that are not in your control. These are good to be aware of. If there are particular review triggers you believe exist in your claim, you can take extra care in preparing records and documentation so you will be ready to defend your case should a review happen.

Filing history – it’s likely that your claim will be reviewed at least once every 5 years.

Amount of ITC – larger claims are more likely to be reviewed, especially if the claim is large relative to company’s total resources.

There are several factors that can trigger a review that are in your control.

Your compliance history – if you are reviewed and found to be non-compliant in your claim, your chances of a future review will increase. It’s wise, therefore, to have your claim reviewed by an expert if you have any doubts about its accuracy. Most SR&ED consulting firms provide various levels of service, from full claim preparation to supporting and reviewing.

Work described in the project descriptions – in order to be eligible for SR&ED funding, your project has to meet the definition of the CRA’s policy. At a basic level this means:

Projects must clearly show an attempt to overcome a scientific or technological uncertainty;
SR&ED work must follow the scientific method, or a systematic investigation, including, formulating a hypothesis, testing and analysis and modifying the hypotheses as necessary;
The process must be documented properly.

Certain terms in the project description can trigger an audit as they indicate that the policy definition is not being met. This includes:

Trial and Error – involves execution of number of tests in any order and not making it a part of a systematic plan
Words like fine tuning, debugging, trouble-shooting are not regarded as SR&ED as there is no need to resolve uncertainties of underlying technology.
Standard practice is based on the application of routine approaches and procedures which can be accessed by skilled professionals in their respective fields.
In most cases migration is also regarded as standard practice.

Projects that seem unusual for the claimant’s business line – you can mitigate this by explaining how the project connects to your business clearly

Indications of lack of separation of SR&ED and commercial activities – SR&ED is focused on advancing technology. Although advancing technology can and should help a company develop commercial activities, it is not the objective of SR&ED funding. Keep SR&ED claims focused on the technology development and leave out the commercial element.

Contact us for a free consultation and get our expertise on your side today.

Download our Ultimate Guide to SR&ED

Do Tech Start-up Subsidies Work?

As a tech start-up founder, stories of the Canadian government paying almost 80 per cent of developers’ salaries, whether or not a start-up makes money or not, are more than enticing enough to warrant further research.

The question is, could tech start-ups have 80 per cent of their labour costs covered by Canadian government subsidies alone?

We need to look deeper at the complexities that a company has to navigate to access this type of unbelievable funding.

SR&ED, the main source of tech start-up funding

The main source of Canadian government support comes in the form of tax rebates from Scientific Research and Experimental Development program (SR&ED), which hands out about $4-billion annually to companies of all sizes in Canada. Given that SR&ED is one of the nation’s biggest sources of government cash for private sector innovation and research, you would think that most companies would be aware of this opportunity. The fact is however, that many companies have never heard of SR&ED.

How far will tech start-up subsidies go?

SR&ED funding, however, will not get a start-up anywhere near 80% funding. The base federal rate for SR&ED refunds is 35 per cent. In addition, nearly all the provinces and territories add some provincially based SR&ED funding. In Ontario, for example, there is an extra 10 per cent available.

Stories of 80% funding, may not be myths, however. It is possible to pursue multiple subsidy programs simultaneously and this would represent a best case scenario of everything falling into line.

Getting harder to claim

In recent years it has gotten more difficult to secure SR&ED funding. It has been reported that in the last 18 months the Canada Revenue Agency has hired more technical advisers to help the agency assess whether claimed research is eligible and start-ups have seen more information requests than ever before to substantiate eligible expenditures.

Why the crack-down on SR&ED claims?

Reports of abuse and fraud were becoming too common, and the Canadian government wanted to ensure that the program was hitting its targets – to generate original research and make Canada a global leader in innovation.

The CRA’s focus on tightening up SR&ED rules and review process has had the effect of enhancing the standards that companies must adhere to when preparing their claims. Companies have had to become more diligent in tracking and documenting projects to optimize their SR&ED filings.

Increasingly difficult SR&ED process

A number of consulting groups have stepped up to help with the complexities of nearly 20,000 claims per year in tech subsidies. These include accounting firms as well as specialized boutique firms, like Enhanced Capital Recovery, who compete to take care of the increasingly difficult paperwork for start-ups as well as large, established companies such as BlackBerry Ltd., Bombardier Inc., and General Motors Co..

Conclusions

CEOs may question whether SR&ED is viable for their company, but it has allowed thousands of others to build a strong organization and many wouldn’t be here without these types of programs.

SR&ED is a popular funding tool for start-ups because it helps fund needed R&D and innovations as a company grows. It shows us that the Canadian government has figured out that the first thing a company will spend its tax refund on is another developer or engineer to build the companies’ next success story.

Contact Enhanced Capital Recovery for a free consultation today.

How to Get the Most Out of Your SR&ED Claim

Businesses in Canada have long been taking advantage of the benefits of the Scientific Research and Experimental Development (SR&ED) program. With up to 60% of funding provided for innovative research and development in commercial applications, SR&ED claims have assisted many Canadian companies in funding their R&D projects and remaining competitive in the global market.

While the SR&ED program is extremely beneficial, if not done properly, it could lead to review and rejection by the Canadian Revenue Agency (CRA). In fact, SR&ED claims require in-depth knowledge of current incentives and a familiarity of how to best prepare your claim for maximized funding.

SR&ED claims require specialized knowledge

In order to first maximize your funding, the person preparing the claim must understand the intricacies of SR&ED and other R&D incentive programs. Understanding which incentives the business qualifies for requires both time commitment and knowledge of the Canadian Revenue Agency’s criteria.

For organizations with a small, specialized staff, the majority of their energy is directed towards working on their projects. In these circumstances, it makes sense to consider hiring an expert SR&ED consultant to manage the claim. SR&ED consultants, like Enhanced Capital Recovery, can manage the claim end-to-end and in most cases greatly improve the amount of your claim.

The SR&ED program is changing rapidly

SR&ED program policy is rapidly evolving due to the goals of the program and politics. Keeping informed of policy changes is essential to maximizing your claim and reducing the risk of claim rejection.

However, this can be a challenge for a busy organization that does not have a specific individual to handle SR&ED claims. CRA policy changes can be complex and require interpretation to understand fully.

SR&ED is a technical matter as much as it is an accounting exercise

An important step towards securing a SR&ED tax credit is to understand that the program is not a simple accounting exercise. SR&ED is based on technical merit and therefore requires proper technical documentation, in addition to financial documentation. Successfully achieving SR&ED funding goes well beyond the first step of discovering your company’s eligibility of the program.

Essentially, to qualify for an incentive, your business must demonstrate that it contributed to advancing an industry technology. This involves a scientifically documented process of overcoming technical uncertainty and contributing to the advancement of a new industry technology.

This could be making changes to a process to improve productivity or reacting to an unexpected obstacle with innovative expertise. Regardless of the experiment’s success, these attempts and processes need to be demonstrated in order to qualify for funding.

Proper documentation of SR&ED projects is critical

Satisfying SR&ED criteria is your company’s first requirement in applying for an incentive, but the ability to prove your contributions in the industry are equally as important. The CRA will likely consult with industry experts when reviewing your claim, making demonstration of your technological advancements and gained knowledge vital.

Keep track of any product trials and experiments to remedy unanticipated results, and documents explaining industry research, as these may be required when submitting your claim.

Meeting with key employees often to capture these improvements is a good idea, and making a routine of discussing and documenting your expanding industry knowledge will ease the application process.

Contact Enhanced Capital Recovery for a free consultation to find out how we can help you get the most out of your SR&ED claim.

Explaining SR&ED Expenditures

The SR&ED program defines, “overhead and other expenditures” as expenditures that may be directly attributable to the prosecution of SR&ED in Canada.

Overhead expenditures in SR&ED, importantly are not to be confused with the definition commonly used under the generally accepted accounting principles in Canada. GAAP accounting rules refer to overhead as an indirect cost. This does not hold true for SR&ED, however, as overhead and expenditures must be directly attributable to the SR&ED activity to be eligible.

The test to determine what expenses are directly attributable

The CRA has developed two tests to show what expenses are directly attributable to the prosecution of SR&ED: “The expenditure must be directly related to the prosecution of SR&ED in Canada; and the expenditure would not have been incurred had such prosecution not occurred.”

A portion of directly attributable expenses may be allowable

If a portion of an expenditure is directly attributable to the prosecution of SR&ED the portion of the expenditure can be allocated to SR&ED work on a “reasonable basis.”

The importance of direct link to SR&ED work

In order for an expenditure to be eligible for SR&ED, the expenditure must be directly related to the following – with no intervening steps:

“the SR&ED work;
the SR&ED staff;
the equipment used by staff to perform SR&ED.”

The CRA views the question of an expenditure being directly related to the prosecution of SR&ED as a question of fact – and as such, the fact must be verifiable and documented to show it.

Enhanced Capital Recovery’s team of technical consultants are experts in helping you determine if expenditures meet these guidelines.

Example of directly related SR&ED expenditures

Here are some examples of expenditures that may be considered to be directly related to the prosecution of SR&ED sourced from the CRA website:

“Salary or wages of clerical and administrative staff providing a service to SR&ED employees if the functions performed are non‑technological and aid the ongoing SR&ED claimed in the year;
Contract costs – other than a SR&ED contract Employer’s share of related benefits;
Moving expenses related to the relocation of SR&ED employees to another facility;
Lease costs of equipment used less than 90% of the time in SR&ED;
Other expenditures, such as: long-distance telephone charges, expenses for travel and lodging, cost of training in Canada, cost of utilities; and others”

Directly related expenditures not eligible for investment tax credits

Also, some expenditures may be directly related to the prosecution of SR&ED, but they are considered prescribed expenditures and do not earn investment tax credits. These expenditures could be included in the pool of deductible SR&ED expenditures but would not be qualified expenditures for the purposes of calculating the ITC amount. These include the following, sourced from the CRA website:

“Fees for preparing SR&ED claims
Cost to attend conventions or conferences
Interest expenses
Certain expenditures, including salary or wages, that relate to the general administration or management of a business are generally not allowable for SR&ED purposes. These costs are not directly related to the prosecution of SR&ED; they are related to the carrying on of a business.”

Examples of indirect expenditures

Expenditures incurred by the business which are generally not directly related to the prosecution of SR&ED are not eligible. A few examples include:

“taxation;
legal services;
sales, marketing, and advertising;
shipping and distribution (other than shipping and distribution costs of experimental products for internal or customer testing);
production (other than materials or equipment used in SR&ED).”

For detailed policy instructions, please see the CRA’s website; also read more about SR&ED Salary and Wages Policy in our blog.

Contact Enhanced Capital Recovery today for a free consultation to determine if your project is eligible for SR&ED or to review a current or past SR&ED claim.

Defining SR&ED Salary and Wages

According to SR&ED policy, eligible salary and wages for the purposes of SR&ED are defined by the CRA much as it is defined in the Income Tax Act – namely that salary or wages must be taxable benefits.

Payments that would be taxable to the employee can include vacation pay, statutory holiday pay, sick leave pay, pay in lieu of termination notice, bonuses, tips and gratuities, honorariums, director’s fees, management fees and commissions.

Incurred expenditures

For the purposes of a SR&ED claim, a second requirement that must be met to be approved as “salary or wages” is that the expenditure must be incurred. In other words, payment of salary and wages must be paid within 180 days of the tax year the employee completed the SR&ED work. Stock option benefits, for example, are not considered incurred and therefore would not be included.

Work must be directly related to SR&ED or in direct support

Obviously, amounts included in SR&ED salary or wages must be for work done on a SR&ED project. However, SR&ED work can extend to salary or wages for employees directly supervising or supporting SR&ED and can include the portion of the supervisor’s work allotted to SR&ED activities.

Administrative salary or wages for employees “directly attributable” may also be included as SR&ED overhead and other expenditures. Directly attributable costs include salary or wages of clerical and administrative staff providing a service to SR&ED employees.

In these cases, the duties of the administrative staff assist indirectly in the SR&ED work. For example a portion of the work of a payroll clerk could be considered directly attributable if the employee processed payroll for SR&ED staff.

Other eligible SR&ED “salary and wages” expenditures

There are a few scenarios that one might not presume to be included in SR&ED salary and wages. For example, work that is done outside of Canada may in fact be relevant. However, SR&ED work that is done outside Canada cannot exceed 10% of the total amount of salary or wages for the SR&ED work completed inside Canada.

Bonuses can qualify under “salary and wages”. A “Bonus” is a gifted amount, or gratuity, to which the employer was under no obligation to make.

Remuneration based on profits may also be counted as “salary and wages” in SR&ED policy. “Remuneration based on profit” refers to remuneration that is conditional on the profit of the business.

Inducements and non-competition payments, such as signing bonuses, can be considered remuneration during employment.

Amounts excluded from SR&ED Salary or Wages

In general, situations which remove an employee from direct engagement in SR&ED activities are not allowable under salary and wages. Extended vacation or sick leave are examples of this, as the employee would not be performing any SR&ED related duties during the leave period.

Stock option benefits are not considered under “salary and wages” for SR&ED since no expenditure will be considered to have been made by a taxpayer on shares issued on the exercise of options.

Note: always check the complete CRA rules or refer to an expert there are specified employees that may not fit these guidelines.

Enhanced Capital Recovery offers professional SR&ED consulting services in Vancouver, Edmonton and Toronto and are here to support you fully in your SR&ED claims.

Put our expertise on your side by contacting us for a free consultation today.

IRAP Funding Examples

Is your company looking for R&D funding and not sure if IRAP funding suits your needs? Take a look at some examples of how a manufacturer took advantage of IRAP funding to improve productivity, develop new products and hire the right team of technical experts to successfully grow their company.

Enhanced Capital Recovery (ECR) can help with your IRAP projects

ECR is your one stop R&D funding consulting firm. Our industry experienced consultants will look at your whole situation to help you determine the best funding sources for your projects, including IRAP and SR&ED. In some cases both IRAP and SR&ED can be applied to the same projects. We’re here to guide you through the entire process.

In terms of IRAP project support, ECR provides the following full cycle IRAP funding consulting services:

Assistance with the preparation of the IRAP Project Proposal
Assistance with setting up the firm’s ability to track and manage time and costs spent on the project
Assistance with the monthly IRAP claims process
Assistance with the preparation of the IRAP Final Report

IRAP Manufacturing Examples

Improving productivity

A cabinet manufacturer first utilized the NRC’s IRAP program to support improvements on the company’s manufacturing productivity. The company wanted to apply new factory simulation software to help optimize manufacturing flow through the processing plant. The IRAP supported simulation software allowed the company to assess shop floor layouts, identify and remove bottlenecks.

Supporting new product lines

Subsequently, the same manufacturing company looked for technical assistance for a new line of cabinets they were developing. Through NRC-IRAP support, the company was able to hire its first engineer to work on this project and successfully develop the product.

Hiring the right experts

Building on their success, the cabinet manufacturer used the support of IRAP to hire two additional engineers, including a specialist in wood properties. This expert contributed to further improvements to the manufacturing processes and a 40% decrease in rework due to previously common errors in the measurements.

The IRAP project supported engineers, continued to contribute by improving and reformulating many of the company’s custom finishing processes. Over 30 finishes were reformulated, and a 33% reduction of finishing time and rework was achieved.

From initial introduction to IRAP to present, the cabinet manufacturer’s sales grew by 38.6% despite a decline of 25% in the industry during the same time period.

Contact Us

Find out how you can benefit from R&D funding sources in Canada. For all of your IRAP, SR&ED and full service R&D funding support, contact ECR today to book a free consultation with one of our experienced consultants.

Complete R&D Funding for Your Company

There are several available R&D funding sources in Canada and it can be confusing to navigate the complex requirements and application procedures for any one of them – not to mention all of them.

When you try to secure R&D funding on your own without fully understanding the processes, you may be missing opportunities or setting your company up for unnecessary risks, such as CRA reviews.

Are you looking for end to end R&D innovation funding support?

Working with experienced R&D funding consultants, like Enhanced Capital Recovery, makes sense when facing the complexity of the Canadian R&D funding landscape. We know from experience how to navigate the entire range of R&D funding opportunities and a have proven track record of success to show for it.

Now, however, ECR is offering an even more comprehensive service with our end to end IRAP project support – from proposal to documentation – we’ll help you secure and execute your IRAP projects.

How does Enhanced Capital Recovery support R&D funding initiatives?

Starting with IRAP, our consultants will help you plan out your innovation activities and then capture more of the costs for innovation via SR&ED and other possible funding sources.

Our value at ECR is working closely with our clients to act as an experienced guide through the entire R&D funding process. Beginning with the initial free consultation, we’ll help you:

review your company’s past projects to determine if they are eligible for SR&ED;
make a business case for technological innovation/investments you are considering;
identify both short and long term sources of funding to get your innovation projects off the ground;
plan to capture IRAP and other types of R&D funding
set up your firm to easily track and manage time and costs spent on the your innovation projects for the numerous government recovery programs including IRAP and SRED
navigate the SR&ED claims process
report and answer queries from any authorities

Enhanced Capital Recovery can help with all of the many possible research and development funding incentives in Canada and help your company improve its research capability and bottom line.

BC SR&ED

BC Finance Minister Mike de Jong’s provincial budget announcement in late February this year included continued support for BC’s innovation-driven companies. Although the Federal version of SR&ED is a continuous offering, BC offers its own credit on top of the federal tax incentive.

As per the BC Government website, “qualifying corporations that are Canadian-controlled private corporations (CCPCs) may claim a refundable tax credit of 10% of the lesser of:

the corporation’s SR&ED qualified B.C. expenditures for the tax year, or
the expenditure limit (generally $3 million), as defined in the federal Income Tax Act

A non-refundable tax credit may be claimed for expenditures in excess of the expenditure limit. The non-refundable credit may also be claimed by other qualifying corporations and CCPCs that are not eligible for the refundable credit. The non-refundable credit for a tax year is 10% of the corporation’s SR&ED qualified B.C. expenditure for the year less:

the amount of its refundable credit for that year, and
any amount renounced for that year”

How significant is the BC SR&ED program

According to provincial Finance Ministry figures the tax credit was worth $154 million to B.C. companies in 2013-14, with expectations it will represent about $99 million in 2014-15 and $180 million in 2015-16.

The amount of SR&ED returns for the BC SR&ED program show how significant the program is, especially to BC’s $3 billion tech industry. SRED is one of the key things the government does to support the tech sector. It supports R&D which is something most companies consider essential and at the same time struggle to find funding for.

The SRED tax credit allows companies to do research and development they may otherwise not be able to afford. Through the SR&ED program, companies can claim an off-setting tax credit for expenditures related to wages, materials, machinery, equipment and some forms of overhead.

For Canadian controlled corporations in the start-up phase, SRED is critical to their survival. It allows start-ups to invest in research and development in order to stay competitive in the global marketplace and to have the opportunity to expand their product and service lines.

Contact Us

Enhanced Capital Recovery can help with all of the many possible research and development funding incentives in Canada, including the BC SR&ED program, and help your company improve its research capability and bottom line.

Is Your Project Eligible for IRAP Funding?

Are you looking for end to end R&D innovation funding support?

Find out how Enhanced Capital Recovery can help your company start with IRAP, plan out innovation activities and then capture more of the costs for innovation via SRED.

Enhanced Capital Recovery can help with all of the many possible research and development funding incentives in Canada and help your company improve its research capability and bottom line.

Why is IRAP one of Canada’s top innovation funding programs?

IRAP funding is a non-repayable grant – however, funded organizations must contribute a percentage of the overall project cost.

As an extra bonus, IRAP funding can still be claimed as Scientific Research and Experimental Development (SR&ED) when the project’s technical merits align with SRED requirements.

IRAP funding is applied for before innovative work is conducted. Once the work is done, SRED can be claimed based on eligible activities and the associated costs. After deducting the IRAP portion from the activities, the remaining costs are SRED eligible.

Find out if your project is eligible for IRAP funding

NRC Industrial Research Assistance Program (IRAP) provides financial support to over 10,000 qualified small and medium-sized enterprises (SMEs) in Canada to help them undertake technology innovation.

IRAP eligibility

In order to be considered for IRAP funding, organizations must:

be a small and medium-sized enterprise in Canada, incorporated and profit-oriented;
have 500 or fewer full-time equivalent employees; and
have the objective to grow and generate profits through development and commercialization of innovative, technology-driven new or improved products, services, or processes in Canada.

In order to receive IRAP funding both the firm and the project are evaluated by one of IRAP’s Industrial Technology Advisors (ITAs) located across Canada. Consultants can assist with preparing for the application for IRAP

For your IRAP application to qualify, the IRAP Advisor will consider:

your organization’s financial capabilities and the viability of its plan to commercialize the developed technologies;
your project’s technical aspects and its potential impact on the organization; and
your organization’s management capabilities and ability to achieve the expected results expected from the proposed project;

How can Enhanced Capital Recovery support my IRAP application and all other Research and Development funding sources available in Canada?

ECR believes in working closely with your company to support you through the entire innovation process. This includes the following services and more:

looking at the your company’s past work to see if it is eligible for a SRED recovery;
helping seek out sources of funding for short term and long term funding;
planning future project funding via IRAP, the Voucher and other programs

We will assist your company with end-to-end innovation planning and funding including:

Helping your company see how technological innovation/investments can help improve your bottom line via IRAP funding and other funding sources;
Assistance with setting up the firm’s ability to track and manage time and costs spent on the your innovation projects for the numerous government recovery programs including IRAP and SRED
Assistance with the claims process
Assistance with the preparation of the regular reporting and any queries from any of the authorities