Are you and your team at your company doing something cutting edge, something innovative? If so, then I’m sure you’ve heard about Canada’s Scientific Research and Experimental Development program also known as SR&ED.
If you are new to SR&ED, it is a mission-critical, CRA-administered program that provides billions in investment tax credits (ITCs) to incentivize thousands of Canadian companies to take risks and spend money to advance their scientific and technological knowledge and capabilities. (Learn more here: What is SR&ED)
This ‘SR&ED ITC’ funding, if you will, comes in two forms, cashback or tax credits that reduces taxes payable. What expenses are eligible? How do you go about claiming your expenses? More questions like these immediately arise leading to numerous Google searches and folks trying to make sense of the lengthy SR&ED criteria outlined on the Canadian Government SR&ED website. More questions, confusion, and many misconceptions often result.
HERE ARE 10 COSTLY MISCONCEPTIONS WE STILL SEE TO HELP CLARIFY:
1. The SR&ED program is only for technology companies.
Truth: Companies of all industries can apply.
2. If my company is profitable, we can’t claim SR&ED.
Truth: Profitable companies can apply.
3. My science or technology project needs to be successful to claim SR&ED.
Truth: It is the intent (and process) of your SR&ED project that matters, not its success or failure.
4. We need a lot of documentation to apply.
Truth: The more documentation the better, but few companies track their expenses perfectly before coming to us. HERE are tips to help.
5. All we are doing is routine software development, nothing special. It’s not SR&ED.
Truth: What is ‘routine’ to one software engineer may not be routine to another or from the perspective of others in the business. The SR&ED program isn’t only for “revolutionary” development. Many SR&ED claims are about incremental improvements!
6. We are a public Canadian company, so we don’t qualify for SR&ED.
Truth: Public companies can claim SR&ED. They just don’t qualify for the enhanced rate and the cash back (ie. refundable) Investment Tax Credits.
7. My company is too big (or too small) to claim SR&ED.
Truth: Companies of all sizes can claim SR&ED. There is no minimum size of a SR&ED claim either.
8. I only used a contractor for my R&D work, so their wages aren’t eligible for SR&ED ITCs.
Truth: You can claim Contractors as eligible SR&ED expenses so long as the work is done in Canada by Canadian companies or individuals.
9. My accountant can do my SR&ED claim.
Truth: Maybe, but a SR&ED claim is more than just filling out paperwork. Framing and positioning your team’s project and technology as it pertains to SR&ED requires a deep understanding of the program and technology which requires technical experts and engineers, not just accountants.
10. We save money doing our SR&ED claims in-house.
Truth: SR&ED claims take a week or so to complete. This means that your money is spent on doing government paperwork instead of more valuable product development, customer acquisition, etc. This time does not even include the time required to manage an audit if your company’s claim is chosen. With more audits in 2021, engaging an expert service provider, the RIGHT provider to match your business size/needs, does result in a net increased return for your SR&ED expenses claimed.
If you had any of these misconceptions you were in good company. The program is complex. It’s why our firm exists, and it’s our continuing mission at ENTAX to clarify, help your team find the signal in all the SR&ED noise, and to empower Canadian entrepreneurs and leaders like yourself who risk to innovate.
Have more questions? Let us know by booking a free consultation with us or giving us a call. One of our SR&ED Engineers would be happy to answer your questions and chat about your team’s innovative project in more detail.