Empower your business with this government incentive program

In tough economic times, many businesses struggle to make ends meet. Thankfully, the federal government has always extended their help and offered financial support to businesses of all sizes to drive innovation and technology forward. One of the most widely known incentive programs available to Canadian businesses has always been the Scientific Research and Experimental Development Program (SR&ED).

SR&ED is a federal tax incentive program administered by the Canada Revenue Agency, encouraging Canadian businesses in all sectors to conduct research and development in Canada. It is the largest single source of federal government support for industrial R&D, providing claimants with cash refunds and/or tax credits for their expenditures on eligible R&D work done in Canada. Even though the definition of the program can easily be found on the CRA website, many business owners who might be perfect candidates for this incentive still don’t know much about it, and assume they are not qualified. Due to a simple lack of knowledge, you could be missing out on tax refunds of up to 35% of your annual payroll. Often, the business is eligible to receive substantial cash refunds, but the main challenge becomes how to determine whether your business qualifies?

There are some ground rules to establishing SR&ED eligibility criteria:

1. Your company should be registered as a Canadian-controlled private corporation.

2. You must have employees on the payroll or contract program.

3. Your business must demonstrate that it is conducting technologically challenging work.

4. You must be able to show that you have undertaken systematic investigation in order to solve a problem.

5. You must have achieved technological advancements as a result of the experimentation you have conducted.

In plain words, this means that if your company has gained knowledge (in its industry domain) by enhancing or modifying existing products or processes, or by developing new products of which there was no prior knowledge, you are most likely eligible for an SR&ED incentive. Typically, when such development occurs, companies face many technological obstacles, which they try to resolve through systematic experimentation by attempting different solutions to achieve the desired results. Often, these obstacles are treated simply as routine work, which is precisely why many businesses take them for granted, thinking that they haven’t really conducted any research, when, in fact, they have—without realizing it!

Industries such as software and IT, food and beverage, tool and die, machining, fabrication, printing and medical are just some of the examples of businesses where qualified SR&ED work could be conducted.

Interested in further exploring whether your business can benefit from SR&ED? While a lot of information is available to the public, it is often tough to determine whether or not your business has projects that qualify. It is highly recommended that you either utilize a claim pre-screening service offered by CRA, or hire an independent professional SR&ED consultant who can not only determine if your business qualifies, but also help you establish accurate SR&ED tracking and evidence gathering mechanisms required to conduct the proper scientific research that meets the strict guidelines of the program. The claim preparation process consists of two parts: the technical writing, and a financial statement, which is filed along with your corporate tax returns or as an amendment. Experienced consultants will have the knowledge of the SR&ED filing process necessary to enable you to continue your business without interruption.

The bottom line is that Canada is considered to be one of the most supportive countries when it comes to fostering innovation. As a Canadian business owner, it makes sense to explore such opportunities to see how you can take advantage of them, and drive beyond your company’s knowledge and technological abilities. If you require additional information about the program and want to know if you qualify for an SR&ED incentive, please visit our site at www.modenaltd.com

By Alex Chernin

May 24, 2019

Alex Chernin is a business development manager at Modena Ltd. Modena guides clients in filing claims and educate them on how to establish proper SR&ED processes in their companies.