Many competing Canadian businesses use various resources to their advantage, one of which is devoting significant resources to the scientific research and experimental development (SR&ED) of new products and processes. Some may wonder if they are eligible for government grants through SR&ED, but before getting into the nuts and bolts, it is important to get a clear understanding of what it is all about. This program is the largest source of Federal government endorsement for research and development in Canada. The CRA uses multiple questions and criterias to determine SR&ED eligibility. The following are the expected criterias that should be met for the CRA to review:
Technological Uncertainty – faced technical challenges or uncertainties.
Technical Content – went through an iterative process to try and overcome those challenges or uncertainties.
When participating with this program, you could be granted incentives which can be received in the form of tax credits or tax refunds. This article will outline and demonstrate the eligibility regarding qualification for these government grants.
Benefits for qualifying for SR&ED government grants
There are three substantial benefits for qualifying in SR&ED expenditures. First being a full tax deduction in the year that such expenditures occurred, the ability to pool SR&ED expenditures (enables you to carry over deductions to the extent that they are not needed currently) and eligibility for appealing investment tax credits (ITCs), which can be refundable in cash. The Federal government provides a refundable tax credit at a rate of up to 35%. These factors can be used to your benefit if you hold the opportunity to qualify.
Applying for SR&ED incentives
In order to figure out if you are a qualified member for those grants, you will first need to apply for SR&ED tax incentives. The applicable forms must be filled out by the deadline stated. Keep in mind that for corporations, the reporting deadline is 18 months from the end of the tax year in which the SR&ED expenditures were incurred. It is very important to remember that all of the required information, including necessary project reports, must all be filed within the given timeframe. Failure to do so will result in not being able to include the amounts in the pool of deductible SR&ED expenditures to use to decrease taxable income and you will lose the ability to claim an ITC on these outlays.
How do you know if you qualify?
The CRA carefully examines SR&ED claims, the length and process of the review are generally determined by the size and complexity of your claim. Once the CRA has verified that the claim is eligible, then the ITC is allowed. These following factors can determine whether or not you are eligible for SR&ED tax incentives:
Basic research – namely work undertaken for the advancement of scientific knowledge without a specific practical application in view.
Applied research – namely work completed for the advancement of scientific knowledge with a specific practical application in view.
Experimental development – work undertaken for the purpose of achieving technological advancement creating new or improving existing, materials, devices, products or processes.
Work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.
Not everyone is eligible for SR&ED incentives, it is appropriate to know who is not suitable such as; commercial production of a new or improved material, device, or product, or the commercial use of a new or improved process, quality control or routine testing of materials, development based solely on design or routine engineering practice, social science or humanities research, market research or sales promotion, style changes, prospecting, exploring, or drilling for (or producing) minerals, petroleum, or natural gas.
Many of these incentives go unclaimed, why not use your SR&ED to your benefit and check to see if you are entitled for grants.