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Everything you Need to Know about Scientific Research and Experimental Development
It’s a mouthful to say, but when it comes to scientific research and experimental development in the sign manufacturing Industry, it’s no different than any other, in fact, SR&ED is more prevalent than you may think.
By Norman Nicol
Unfortunately, many companies do not believe they engage in any qualifying SR&ED activities.
The government estimates that more than 50% of firms in Canada that are eligible for SR&ED tax credits are not taking advantage of this program.
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The SR&ED program is the largest single source of federal government support for research and development. Every year, the SR&ED program provides over $6-billion to more than 18,000 claimants.
The SR&ED tax credit program is for Canadian companies that develop new or improve existing products or processes, and its goal is to help Canadian companies maintain manufacturing in Canada. It has been in existence for over 20 years and is administered by the Canada Revenue Agency, but the SR&ED department is totally separate from the regular tax department, so no information is shared between the two departments.
The CRA administers the program with a staff of engineers who can assess scientific process.
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Both public and private companies can benefit from the SR&ED program. Publically owned companies can earn 20% of qualified expenditures as tax credits or refunds. Privately owned Canadian companies (CCPC’s) can qualify for up to 35% of qualified expenditures as tax credits or refunds.
Additionally CCPC’s can also qualify for additional provincial tax credits ranging from 10% to 37.5% of qualified expenditures.
In your own business, some of the issues that come to mind may be:
- Uneven lighting of products
- Vacuum forming
- LEDs replacing incandescent
- New materials, and dealing with shadows on products
How you deal with these issues becomes the basis of your SR&ED claim.
Identifying your innovation is the key. You may not think that your company is innovative because you work in it everyday. The success of a project is not an issue when claiming; in fact, your failures are as valuable as your successes.
The CRA looks at your knowledge base and your advancement of this knowledge only.
Three criteria that your project needs to meet in order to claim for SR&ED are:
- Technological advancement
- Technological uncertainty and any obstacles
- Technological content
Each project must have these three elements in order for the project to apply for the SR&ED program.
Technological advancement is your company’s advancement in its knowledge base. Even if failures develop, the project qualifies if you can show that you learned something.
Technological uncertainty (now referred to as technological obstacles) are the hurdles that you encountered when trying to develop the product or process.
When you take on a new project, you do not know if it is going to work, so you have to identify what you did not know.
Technological content is the work that you performed and clearly identifying what exactly was done for the project. Identifying this work can be a difficult and time consuming for a layperson as you look back on what work has been done, but the benefits do out weigh the difficulties.
You can go as far back as 18 months from your last FYE (Fiscal Year End).
The SR&ED Program can minimize your taxes owing, maximize your net worth, and increase your cash flow.
Norman Nicol is Sales Manager for Northbridge Consultants. Norm has 15 years of sales experience helping SME’s in a variety of industries ranging from retail to manufacturing. Norm is very experienced in helping Canadian Companies identify their SR&ED potential.
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