Your competitors are getting refunds. Are you?
If your company is developing new or improved materials, products, or processes, this work may qualify for substantial refunds and/or tax credits under the federal government’s Scientific Research and Experimental Development (SR&ED) Program. This promotional claim is published by the Canada Revenue Agency (CRA) in their document RC4290 Rev. 05, Refunds for Small Business R&D and it demonstrates the intent of the SR&ED Program which is administered by the CRA. The source of the following information is the CRA documents RC4290 Rev. 05, T4088 Rev. 06, and IC86-4R3.
What is the SR&ED Program?
The SR&ED Program is an incentive program designed to encourage R&D in Canada. The Canada Revenue Agency (CRA) administers the program. Each year, the CRA receives over 11,000 claims from companies participating in the program. Of these, about 75% are small companies whose claims for R&D expenditures generally range from $20,000 to $2,000,000. Qualifying companies get money back as an income tax refund, an investment tax credit, or a combination of refund and credit.
What’s in it for your company?
If your company qualifies, from the federal government you could get back up to 35% of your R&D costs, possibly helping to finance further projects and improve your overall financial position. The net benefit may vary. (The benefit to corporations in the Small Business category is higher as compared to the large corporations and foreign-owned corporations that could received tax credits up to 20% of their of their R&D costs.)
Are there similar provincial financial incentives?
Most provincial and territorial governments provide R&D incentives, either separately or as part of the federal program. For example, through the Nova Scotia Government’s R&D program, through the New Brunswick Government’s R&D program or through the Newfoundland and Labrador Government’s R&D program you could get back up to 15% of your R&D costs. R&D Programs in these three provinces are among the best in Canada. In the Nova Scotia, New Brunswick and Newfoundland and Labrador provincial R&D incentive programs, the benefit is similar for small, large and foreign-owned corporations performing R&D work in the province. A corporation must be a resident (and filing a T2 tax return) in the province where it is claiming the R&D tax credit. For specific information about the provincial R&D programs, please refer to the provincial websites.
Will your company’s work qualify?
If you are a Canadian small business that develops new or improved materials, products, or processes (including incremental improvements) in Canada, you may be eligible to receive refunds for SR&ED if:
· you have to try to overcome one or more new and unexpected technological problems;
· you have to conduct trials, experiments, or analyses to solve these problems;
· you required experience or technologies not commonly available to your company to solve these problems; and
· your work plan, if successfully completed, will result in a technological advance in your industry or field. Even if your attempts prove unsuccessful, you may still qualify.
You also have to demonstrate that the work was done. You can use reports, models, prototypes, test results, logbooks, or photographs to help support your claim.
What expenditures qualify?
You can claim many of the costs incurred for SR&ED during your fiscal year. These costs may include:
· wages for staff doing the work;
· materials consumed in performing SR&ED;
· new machinery and equipment purchased for SR&ED;
· costs of SR&ED contracted out;
· lease costs (excluding building leases, or rent);
· third-party payments to organizations such as universities;
· overhead costs related to SR&ED, or a proxy for these costs.
What expenditures do not qualify?
Some work does not qualify. Eligible SR&ED does not include work for:
· market research or sales promotion;
· quality control or routine testing of materials, devices, products, or processes;
· research in the social sciences or the humanities;
· the commercial production of a new or improved material, device, or product, or the commercial use of a new or improved process;
· style changes;
· routine data collection.
What happens if your SR&ED is ongoing?
You can claim for projects undertaken and costs incurred during your company’s fiscal year. If the work continues to qualify as SR&ED in later years, you can claim for those years as well.
What happens after you send in your claim?
Your claim is reviewed to see if it can be processed as filed. If your claim can be processed as is, CRA will issue a cheque to you, or allow a tax credit. If CRA cannot process your claim as is, they may request more information or ask to visit your site. If you are claiming for the first time, CRA usually visits you to further clarify what kind of expenditures you can claim. We at Winters International Neotechnologies Inc. have participated in hundreds of reviews in most industrial sectors and we guide our clients through that process.
How long will it take to process your claim?
Claims for refundable tax credits (usually small CCPCs) that are submitted along with your claim T2 Corporation Income Tax Return within six months of your fiscal year-end usually take 120 days to process. If your SR&ED refundable tax credit claim is submitted after six months of your year-end, it may take 240 days to process. If errors or omissions are present in your SR&ED claim, the process takes longer.
Will your entire business be audited if you make a claim?
No. The purpose of the SR&ED review is only to examine information relating to your SR&ED claim, not to examine other aspects of your business.
Will your competitors find out about your R&D?
No. CRA employees and outside consultants have a legal obligation to treat all your tax information confidentially.
The Income Tax Act defines scientific research and experimental development (SR&ED) as requiring a "systematic investigation or search carried out in a field of science or technology through experiment or analysis." Here, technology refers to the systematic study of the application of scientific knowledge to industrial processes or product development.
The eligible categories of scientific research and experimental development are as follows:
(a) basic research, namely, work undertaken to advance scientific knowledge without a specific practical application in view;
(b) applied research, namely, work undertaken to advance scientific knowledge with a specific practical application in view;
(c) experimental development, namely, work undertaken to achieve technological advances for the purpose of creating new, or improving existing, materials, devices, products, or processes, including incremental improvements thereto, or
(d) EXAMPLE OF DEBUT INVITATION CARDS
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There must be an uncertainty that is of a scientific or technological nature, and not economic or financial risks. Also, the scientific or technological uncertainty refers to your inability to determine whether you can achieve the desired scientific or technological objectives based on generally available knowledge. It does not refer to the inability of a device or product to achieve certain specifications.
If you are unsure and need answers to questions, or maybe you just want to start the process, please call us.
For information please contact Gary Winters at (902) 444-2255.
Thank you for your interest in our services.