Methodology, Eligibility and Documentation
Successful SR&ED claims are built by, engineer driven industry experts, like the Technology Initiatives Group Ltd. For claim purposes preparation is the key to a successful tax claim, as well as protection against any CRA audits or reviews.
SR&ED program experience is required to validate:
- Your advances and content
- The experimental methodology and
- Technical descriptions
The CRA SR&ED Review Process
The Canadian Revenue Agency (CRA) validates all tax credit claims through a 2-step process procedure:
- First claims are processed and scanned for inconsistencies or errors
- Secondly Notices of Assessment are issued
Notices of Assessment may either:
- Reject a Claim or
- Request further review
Types of SR&ED Tax Credit
In the event that further information is requested, business can expect one of three review types:
- Desktop reviews are a manual read-through of all technical information.
- Financial Only
- Financial reviews are only concerned with financial documentation.
- Financial and Technical
- Financial and Technical Reviews are the most in depth because they delve into both into financial and technical aspects in addition to on-site interviews.
A CRA review can have a negative impact on the overall operation of your business, as it takes away precious resources and time to ensure your claims are valid. By using an SR&ED expert, you will be protected by any CRA reviews, as you will have a highly skilled and trained expert to defend all your claims.
What Are R&D Tax Credits?
R&D tax credits are given by the Canadian government to encourage companies to undertake industry advancing projects that have financial risks. These Research and Development tax credits allow businesses of all sizes to advance technology, processes, or other aspects of one’s business, through a controlled and well documented program.
Are R&D Tax Credits Different From SRED Tax Credits?
R&D tax credits are the same as SR&ED tax credits, however R&D tax credits are the older name for the government program. Before 1986, businesses perceived the R&D tax credit program as a tax credit for businesses working in a lab environment making new scientific discoveries, when in fact this program was meant to keep Canadian businesses innovating from the very beginning. In 1986 the government changed the name of the program to “Scientific Research & Experimental Development”, which further allowed for clarity into the true purpose of the program. Oddly enough, many businesses today are still oblivious to the fact that their business may qualify for this government incentive program!
Why Are There So Few Businesses Using the SRED Program?
There are two answers to this question.
- There is still a misconception among many business owners and corporations about not fulfilling the criteria for a SRED claim.
- Business owners and corporations simply don’t know about the program.
Unless a business owner or a corporation gets in touch with a SRED consultant to discuss the possibility of putting together an SRED claim, they shouldn’t be speculating on the merits of their claim. Instead, they should contact a SRED consultant, get a complementary discovery session, and hear it from the professionals if they have a valid project for an SRED claim. This is the only want to know if your business or corporation is eligible for the tax credit program.
Another area of weakness in the industry is in the knowledge of business owners and corporations about the SRED tax credit program itself. Many educated professional simply do not know that this program exists, and that there are consultants that work strictly on contingency. This means no risk and full rewards for companies that are eligible for SRED credits.
Want to know if your business is eligible for a tax credit?
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Claiming SRED Tax Credits?
There Is Free Information & Help!
Finding free help for your SRED claim can be near impossible, however the CRA has many free resources for first time claimants and those that have previously filed a claim. Some of the information available on the CRA site includes:
- Who can claim SR&ED tax credits
- How a SR&ED claim can be made
- How to prepare for a SR&ED review
- Understanding eligibility requirements of a project
There are also several videos, online tools, and information webinars on specific areas of the SRED program for free. To get started, simply visit the CRA site for the SR&ED income tax credit program.
Although there is free information on the program for the ‘do-it-yourself’ types, having an expert SRED consultant will ensure that your claim is complete, well documented, and accurate. This type of quality and expertise in an claim is the key to getting all the tax benefits that you’re entitled. With a number of unique plans for payment, including payments after a successful application, using an expert SRED consultant is a no-brainer.
The SR&ED Technical Review: A Guide for Claimants
The SR&ED Technical Review Guide, released by the CRA in 2015, is a concise guide on the process that the CRA undertakes when internally reviewing any SR&ED claims. It’s highly beneficial to any organization looking to put together their own scientific research and experimental development claim, to read through the guide and fully understand the process that one must follow when claiming SR&ED tax credits.
Note that the newly updated guide has cancelled and replaced the “Guide to Conducting a Scientific Research and Experimental Development Review” that the CRA released back in the year 2000.
The new guide is packed with helpful materials, including questions used to help determine eligibility of projects for SR&ED tax credits. Some of the sample questions in the guide include the following:
- Was there technological or scientific uncertainty?
- Was a hypotheses formulated; specifically aimed at eliminating the above mentioned uncertainty?
- Did the approach of the project remain consistent with a systematic search; testing the hypotheses through analysis or experimentation?
- Was the project undertaken to achieve a technological or scientific advancement?
- Was there a complete record or work progress kept; from hypotheses to testing, and to the breakthrough?
Not only does the guide help those that are starting a SR&ED claim, it also contains information about the process of reviews; specifically technical and financial reviews that are usually done on projects that have SR&ED claims.
The entire SR&ED process can be quite a consuming task for an organization; this is why many organizations find SR&ED consultants to be invaluable. Not only do SR&ED experts provide assistance with the technical and financial reporting necessary for your SR&ED claim, but also help you to identify qualifying activities or projects. Finally, having a skilled SR&ED consultant will give you peace of mind with your claim, as any CRA audits or rejections of claims will be defended or appealed on your behalf.
Federal SRED Legislative Changes
There have been a number of changes to the SR&ED program as it relates to tax credit amounts. These changes were first introduced in 2012, and have recently come into effect under Bill C-43. The new changes in the program aim to focus the tax credits solely at the project, rather than capital expenditures.
Announced changes include:
- Capital expenses no longer will qualify towards SRED tax credits
- The overhead SRED expenditure rate through the proxy method of claiming will be reduced from 65% to 55% over two years.
- Third-parties and contracts towards SRED expenditures will only be eligible for a total tax credit of 80%.
- The 20% credit for SRED expenditures will be reduced to 15%
There are a number of other changes to the SR&ED program, and changes that will continue to be rolled out in the coming years. It’s important to read and understand the full legislation, or use a SR&ED consultant that will be able to give you the expert guidance needed to fully explore the SR&ED tax incentive program.