You know this already: it’s in your business’s best interest to innovate in order to grow and remain competitive. To help you finance your innovation initiatives, you can rely on several tax advantages, including scientific research and experimental development (SR&ED) tax credits.
Each year, more than 20,000 Canadian businesses share in $3 billion in tax incentives in connection with the federal SR&ED program, which is leveraged by provincial programs, especially in Quebec.
Would you also like to fully benefit from these tax credits? Here are some main points to know about this topic.
1. Any business qualifies
Generally speaking, regardless of the legal form of your business, size and activity sector, you could benefit from the SR&ED program as long as you carry out activities that meet the eligibility criteria.
In other words, no need to be a scientific or technological business to qualify. Furthermore, most claims relate to practical applications, i.e. creating products, processes and devices, including incremental improvement. This is what is known as experimental development.
2. The three criteria to satisfy
Your project must meet the three major criteria to be considered SR&ED:
- It must seek a scientific or technological advancement.
- There must be scientific or technological uncertainty.
- It must include scientific or technical content.
3. Main eligible expenses
The federal SR&ED program offers two tax incentives:
- The deduction of SR&ED expenses to reduce your taxes payable for the current or future tax years.
- An investment tax credit in the form of a cash refund or reduction in taxes payable, or both.
Tax credits may be claimed for four major types of expenses:
- Wages for time worked by employees on SR&ED projects.
- Material used or manufactured during trials.
- Subcontracting expenses (e.g. specialized companies testing your prototypes).
- Third-party payments (essentially, payment to research institutes and consortiums, including universities; in this case, expenses do not have to relate to a specific project undertaken by your business).
4. Thoroughly document your work
The Canada Revenue Agency (CRA) could decide to audit your claim based on different factors. In order to be able to defend your point of view should your claim be contested, we recommend carefully documenting all of your SR&ED work as the project progresses (using timesheets, test reports, prototypes and pictures, among others).
It’s also the best way to precisely assess your SR&ED efforts, and consequently, maximize the tax credits to which you are entitled.
We suggest appointing one or more people to document the process.
5. Obtain guidance
There is too much money at stake and too many nuances in the interpretation of SR&ED support program rules to leave things to chance.
At Raymond Chabot Grant Thornton, we have an experienced team of technical, tax and accounting experts dedicated to SR&ED tax credit claims. We can help you build a strong case and benefit as much as possible from tax incentive programs.