Scientific Research & Experimental Development (SR&ED) tax credits are a lot to understand. The program was initially established in 1977 by the Government of Canada to encourage Canadian companies of all sizes and in all industry sectors to conduct scientific research and experimental development.
Now, if you operate a business in Canada, this tax savings incentive is something you may want to pay attention to.
To help break down the complexities, we spoke with Toronto executive, Michael Majeed. In his role at Arck Innovative Consulting Services, Michael Majeed advises companies of all sizes and types across Canada about how to take advantage of the SR&ED tax program. He most enjoys helping clients receive tax refunds so that they can use the money to stimulate the economy, hire new employees, and grow their business.
SR&ED tax credit explained:
“SR&ED is the largest federal program supporting business research and development where more than $4 billion in tax incentives are provided to more than 20,000 business owners each year,” notes Michael Majeed.
Tax incentives can be provided as an income tax deduction, an investment tax credit (ITC) or in some cases, a refund.
Majeed further explains, “Many businesses qualify for this tax credit, which offers substantial tax incentives to companies that perform certain types of research and development. If it turns out that your business qualifies, the SR&ED program can lower your tax liability and possibly even result in a refund.”
Every year the Canada Revenue Agency (CRA) allocates four billion dollars to a company who would qualify. One-third of this amount of money is left unclaimed and 50% of companies are not claiming and are not maximizing their benefits.
The tax credits come in to form as refundable or non-refundable based upon your company structure. You receive benefits for expenses you’ve already incurred and spent. You can claim up to 18 months from your fiscal year end and SR&ED tax credits give your business a competitive advantage and help offset project expenditures.
Criteria for SR&ED tax credit:
Who qualifies for the SR&ED tax credit? Firstly you must have some sort of technological advancement. There must be uncertainty in the product or process and there must be a systematic investigation and experimentation.
“As an example, if you’re a manufacturing company that is producing parts or you are designing a new part that requires polar types of design iterations and materials, the time spent on labor allocation and material expenditures would potentially qualify for R&D tax credits under this program,” notes Majeed.
Another example is if you are a food and beverage manufacturer one of your main objectives would be to increase your shelf life of your products to avoid spoilage. The ingredients that go in the recipe and the labor and time allocation of your food scientists would also potentially qualify.
“Lastly if you’re a technology company or a software engineer writing code, you could also potentially qualify, adds Majeed.
Why don’t more companies apply?
Some of the reasons why companies are not currently claiming is they feel it’s too complicated or time-consuming. Claimants are also convinced that the government won’t give them a cash refund or that they don’t know if they qualify.
Whatever your focus, chances are you’ve got questions about how SR&ED applies – or doesn’t apply – to you.
There’s SR&ED in almost every industry; it’s just a matter of determining what is considered to be qualifying.