Anxious about your chances of getting your project approved for the SR&ED incentive? Here’s what the CRA takes into consideration when determining the SRED eligibility of your Calgary business.
The Scientific Research and Experimental Development (SR&ED) program is a nationwide tax rebate initiative, made available to claimants by the Canada Revenue Agency (CRA). Those who are deemed eligible by the CRA, namely those who are engaged in R&D activities that could usher in significant advancements in their fields, receive substantial tax credits. It is best to consult with an experienced SR&ED advisor such as CI Solutions. We will take care of all the paperwork for you and increase your chances of a CRA approval.
This tax rebate program is the most generous in the country, with over 20,000 applicants having access to 3 billion dollars every year. The focal point of the program is to coax Canadian businesses, regardless of size or sector, to engage in scientific research and experimental development. These businesses are rewarded with incentives consistently and regularly, if they prepare their claims in accordance with the CRA’s procedures and with Canada’s general taxation norms.
As the number of claimants drastically increases from one year to the next, it isn’t always easy to solicit the CRA’s approval. In fact, the application procedure is fraught with challenges, even more than it was six years ago. Because of the heightened number of applicants to the SR&ED, claim reductions and denials are a frequent outcome.
Stemming from a lack of knowing the exact parameters by which the CRA measures eligibility, many applicants emerge from the process with a bad audit. The appeals process to get a denied claim reversed is often more tedious. In fact, the sheer number of backlogged cases with the Tax Court of Canada is a good indication of the disputes between disgruntled claimants and the CRA.
However, the process isn’t as vague as some make it out to be. There are some very precise parameters that the CRA uses to determine your project’s suitability for SR&ED incentives. To summarize, it gauges whether or not your project has successfully met these three touchstones:
– Technological Advancement – Will your project further the current state of technical knowledge?
– Technological Uncertainty – Has your project encountered certain technical unknowns or hurdles?
– Technical Content – Did you undertake measures by trial and error to address those unknowns or hurdles?
As taken from the Eligibility of Work for SR&ED Investment Tax Credits Policy, the CRA references the following questions while reviewing each application:
This addresses whether or not your project has furthered the current condition of technology by one of two ways: 1. Expanding a functionality or 2. Improving a feature. For instance, in the case of the auto parts industry, a supplier may not have the means to scale up their operations so as to match growing demands. If their SR&ED project sufficiently addresses this issue, the supplier will have met this prerequisite.
Prior to commencing your experiments and in-depth investigation, you will have identified certain technological unknowns. If your hypothesis details your attempts to solve the same in your SR&ED project, you will have met this prerequisite. For instance, if the auto parts supplier has attempted to advance technology by studying various solutions and testing the initial hypothesis against these solutions on an ongoing basis, they will meet this criteria.
Here, the CRA wants to test how systematic and thorough your methods are while approaching the SR&ED project. It will gauge whether or not you followed carefully thought out procedures when identifying the advances you were trying to achieve, the associated hurdles, the systematic experiments and the hypothetical results or other such results showing why the objectives couldn’t be carried out.
This addresses whether or not, through experiments and research, you found a solution that resolved the issues you were facing, and as such, were able to arrive at a technological advance – not simply company-centric but rather, technical-centric. If you encountered certain insurmountable hurdles and were unable to meet your objectives, you may still be eligible for the SR&ED as your missteps have furthered your understanding, allowing you to go to the next stage of the testing cycle.
Any documents that result from your SR&ED project must commensurate with the experiments – meaning they must have been crafted at the same time that the SR&ED project was undertaken, and should have been yielded through such work. You must explain why each of your primary elements are required and how they contribute to the SR&ED project. Commonly used documentation includes emails, books, files, etc. Another important document is a record of time taken to carry out the project i.e. proving the contractor time that went into doing the SR&ED work as you will be receiving SR&ED tax incentives based on the documented time.
CI Solutions is an experienced SR&ED advisory agency that will handle all the paperwork for you to elevate your chances of receiving generous tax incentives. Contact us at (416) 477.5569 to begin your application process today.