Is Your Business Eligible for Tax Credits? Debunking SR&ED Myths
Canada’s Scientific Research and Experimental Development (SR&ED) Program is designed to help Canadian Controlled Private Corporations (CCPC) fund and make further investments in technological advancement. It’s a great program and yet there are many SR&ED myths which distort the opportunity. According to published survey results by Canada Revenue Agency, approximately three-quarters of companies that apply to the program report annual revenue of $50 million or less – could your company be eligible?
The definition of technological advancements can be interpreted broadly and therefore is not limited to specific industries. Let us help you debunk some common SR&ED myths to see if your business is eligible for these tax credits. Generally we work with the following industries:
- Information Technology, inclusive of hardware, software and electronics
- Food and Beverage
- Health Care and Medical
- Machinery & Equipment
- Plastics and Materials
What many businesses don’t realize is that some of the routine business challenges they face each year could be eligible for the SR&ED tax credit. For example:
- A food-services company improves its recipe for a frozen meat pie;
- A leather-garment manufacturer tries out a new dye and must test garments under various conditions to ensure that the dye stays in;
- A pharmaceutical company develops a new lightweight casing for medicinal capsules but discovers over time that it is not leak-proof and so can’t be used (note: unsuccessful R&D projects are still eligible for the SR&ED tax credit. Read more about this in our FAQ section)
- An engineering and manufacturing company develops and modifies plastic molding technology so that it can protect testing components from the hostile oil and gas field environments.
- Read more examples on our success stories page
All these activities, and many more business processes like them, result in knowledge improvement for the company and its staff and hence are recognized as SR&ED by the government and are eligible for an SR&ED tax credit.
Many Canadian corporations in your industry, including your competitors, have received SR&ED funds to develop additional R&D projects and build their knowledge base. For companies with annual revenue of $10 million or less, the vast majority credited the SR&ED program with improving their cash flow and profits.
Companies often misunderstand the research and development criteria necessary to qualify for SR&ED funding—their experiments failed, the technology advancements were minimal, their research has been conducted elsewhere, are common misconceptions.
While the Canadian Revenue Agency (CRA) does require certain criteria for funding, your company may have already fulfilled the research and development aspects. Here are four common myths about what qualifies as a SR&ED claim.
“Our work doesn’t qualify for SR&ED funding”
The CRA gives funding to companies from a wide range of industries.
Funding is available to companies from any industry that carry out projects that qualify. For example, a barber shop that developed new computer software for scheduling appointments may qualify under information technology.
The CRA accepts claims from companies of all sizes, and small businesses conducting everyday experimental developments actually form a large portion of the claims.
“We did not meet our experiment’s goals”
SR&ED funding is awarded on the attempt of your project, not success. Three criteria are necessary to qualify: you must identify a technological problem, attempt to fix the problem with research and experimentation, and be able to demonstrate you did so in a systematic—not random—approach.
As long as your company attempted to overcome a technological setback using technology, there is a good chance it can qualify. Several expenses for the development may be claimed, including employee salaries and material costs
“Our research and experiments weren’t ‘groundbreaking’”
The scientific research necessary for funding is not required to take place in a laboratory or be related to medicine, biology, or other sciences. A baker experimenting with new ingredients to extend a product’s shelf life or a fish processing plant researching new canning methods could also qualify.
The research doesn’t need to be innovative to qualify, either. Your business can use existing information and resources in finding a solution, so long as the research gathered is innovative to the company.
“Our technological advancements were too minimal”
Another common misconception surrounding SR&ED is that significant technological advancements are required to receive funding. Your development doesn’t need to benefit the entire industry, as long as it solves your company’s technology problem.
Your business can also improve upon an existing technology to qualify, such as adapting a green energy solution for increased efficiency. Small advancements taking place over an extended period of time may also be accepted, especially if the time is used to gauge your project’s development.
Want to know more about choosing an SR&ED specialized firm? Please read the following page: “How to choose an SR&ED consulting firm”.
Wondering if your projects are eligible for an SR&ED tax credit?
Please contact us today for a free, no risk consultation to see if you are eligible.