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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.

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.

Looking for Government R&D Funding?

There are two main Government of Canada research and development (R&D) funding sources designed to help Canadian companies undertake technology innovation: Industrial Research Assistance Program (IRAP) and Scientific Research and Experimental Development (SRED). IRAP funding is granted on a pre-approved basis to fund a project, whereas SRED is a tax credit covering up to 68% of eligible expenditures.

IRAP

For companies contemplating projects that would demonstrate technological innovation, and would like to have the project funded, IRAP may be a good option.

IRAP Eligibility criteria

To be considered for IRAP funding, the company must meet some basic criteria and consult an Industrial Technology Advisor from the National Research Council who will assess each project individually based on the strength of the company and specific aspects of the project.

Basic Criteria:

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.

Assessment of the Company and Project:

the business and management capabilities of the firm and the company’s potential to achieve the expected results and outcomes associated with the proposed project;
the financial capabilities of the firm and its plan to commercialize the developed technologies; and
the technical aspects of the project and its potential impact on the firm.

SRED

SRED may be a better Government R&D Funding option for companies who are already making technological breakthroughs in the course of their business activities.

SRED Eligibility criteria

The CRA outlines three requirements your business must complete to earn SR&ED credits:

You attempted to overcome a technological uncertainty
You used unfamiliar, systematic research and development to solve the problem
You aimed to advance a science or technology in the process

While the experiments must be conducted with a measurable goal, they can involve basic or applied research. This could include many types of research and experimental activities, so don’t be dissuaded if you’re not conducting pure scientific research. For example, experimentation around the goal of improving an artificial flavouring for food or beverage could be eligible.

Your projects do not need to be successful to qualify for funding, as long as you can provide evidence of the attempt.

SRED Consultants

Unlike IRAP, SRED claims must be completed without the guidance of a Government consultant and often requires an in-depth understanding of the program to take maximum advantage of it.

Although the SR&ED program is an amazing financial opportunity, with over $3 Billion dollars in funds distributed yearly to businesses across all industries, complex legislation and complex report preparation have created barriers for businesses which are otherwise eligible to take advantage of it.

In fact, it is normal for businesses preparing their own SR&ED claims to experience significant difficulty in determining which expenditures are eligible. This may lead to eligible expenses going unclaimed.

Who is Enhanced Capital Recovery

Professional consultants such as those at Enhanced Capital Recovery are available to help clients capitalize on their applications and benefit most from the company they worked hard to build.

Our team has brought success to numerous organizations, including those whose claims were initially turned down by the Canadian Revenue Agency. Your company will work with SR&ED Consultants knowledgeable in the industry to recover the most funding possible.

For more information about SRED, IRAP or Province specific R&D funding opportunities, please submit a contact form and our team will arrange a free assessment of your case.

Looking for Government R&D Funding?

There are two main Government R&D funding sources designed to help Canadian companies undertake technology innovation: Industrial Research Assistance Program (IRAP) and Scientific Research and Experimental Development (SRED). IRAP funding is granted on a pre-approved basis to fund a project, whereas SRED is a tax credit covering up to 68% of eligible expenditures.

IRAP

For companies contemplating projects that would demonstrate technological innovation, and would like to have the project funded, IRAP may be a good option.

IRAP Eligibility criteria

Basic Criteria:

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.

Assessment of the Company and Project:

the business and management capabilities of the firm and the company’s potential to achieve the expected results and outcomes associated with the proposed project;
the financial capabilities of the firm and its plan to commercialize the developed technologies; and
the technical aspects of the project and its potential impact on the firm.

SRED

SRED may be a better Government R&D Funding option for companies who are already making technological breakthroughs in the course of their business activities.

SRED Eligibility criteria

The CRA outlines three requirements your business must complete to earn SR&ED credits:

You attempted to overcome a technological uncertainty
You used unfamiliar, systematic research and development to solve the problem
You aimed to advance a science or technology in the process

Your projects do not need to be successful to qualify for funding, as long as you can provide evidence of the attempt.

SRED Consultants

Unlike IRAP, SRED claims must be completed without the guidance of a Government consultant and often requires an in-depth understanding of the program to take maximum advantage of it.

Who is Enhanced Capital Recovery?

Professional consultants such as those at Enhanced Capital Recovery are available to help clients capitalize on their applications and benefit most from the company they worked hard to build.

For more information about SRED, IRAP or Province specific R&D funding opportunities, please submit a contact form and our team will arrange a free assessment of your case.

Research and Development Funding FAQ

You have probably heard of the Scientific Research & Experimental Development (SR&ED) program, but you may have some questions. What is research and development, exactly? What kinds of activities apply? Why is the government funding these projects?

There is a good chance that a task your employees have performed in the recent past, or carry out on a daily basis, qualifies for SR&ED funding. Here are the answers to common questions about the program, and how your business may be eligible to recover expenses today.

What is research and development?

The Canadian Revenue Agency (CRA) rewards businesses of all sizes and in all industries for conducting research and experiments with the goal of advancing technology. From the outset, the project must be undertaken to overcome a technical obstacle with an element of uncertainty in the outcome.

Whether or not your experiments were successful does not matter—the CRA bases its funding on the attempt alone—so long as they were conducted systematically and there was an element of uncertainty in the outcome.

The CRA will expect your business to have a technical uncertainty in mind before conducting the R&D, and you must be able to prove this “technical content.” For this reason it is very important to be aware of what needs to be documented and seek an experienced SR&ED consultant.

What types of projects qualify?

For many businesses, eligible projects are often a form of experimental development. An owner of a sporting goods shop who improved a point-of-sale system to track online sales, or a commercial fishery that developed a better canning process could both qualify.

Eligible scientific research doesn’t need to involve microscopes and lab coats (though that certainly counts). Researching your farm’s water use to develop a more efficient irrigation process, for example, could be a qualifying activity.

Why is the CRA rewarding R&D?

The federal government has long since been rewarding research and development by Canadian companies. Beginning as a traditional tax credit program in the 1940s, interest in technological advancement on Parliament Hill has since adapted into the SR&ED program.

The Canadian government strongly feels that domestic research and development keeps Canada competitive in the global marketplace. The SR&ED program is therefore an investment: funding Canadian-owned companies to advance technology for a strong economy.

I think my company is eligible—what do I do now?

The SR&ED application process is becoming stricter each year and since SR&ED is about technical innovation and new knowledge, it is advantageous to engage a specialist who can understand your technical obstacles as well as what CRA requires for a successful SR&ED claim.

If you think your business could qualify for SR&ED funding, contact Enhanced Capital Recovery today for a free consultation to confirm you qualify and perhaps to see how much of your expenses can be recovered. Call Enhanced Capital Recovery at 1-800-470-0235, visit us online at www.enhancedcapitalrecovery.com or email us at info@enhancedcapitalrecovery.com.

At ECR, a SRED firm in Edmonton, Vancouver and Toronto, you will work with an industry-expert consultant who knows how to maximize your claim in your specific field. We look forward to hearing from you!