From start-ups to SMEs to large corporations, we often find companies asking us, “when should we claim our SR&ED projects for the year” and “what activities qualify”? Usually, companies new to the SR&ED program tend to look at the commercialization of a project. The sales and marketing team put hours into the new product development, ad revenue is spent, licensing agreements, travel plans, international deals, and so on. All are great steps in the commercialization process but none of these steps would qualify for the SR&ED Tax Credit. The SR&ED Tax Credit focuses on the first step of the commercialization process, research, and development (R&D). The R&D is the means of systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and is either, basic, applied, and/or experimental development. For detailed information on the three definitions, please click here. Now that the R&D has been defined, we will look at areas to strengthen the SR&ED claim.
Determine Project Uncertainty
To take advantage of the SR&ED Tax Credit, Canada Revenue Agency (CRA) wants a company to demonstrate a scientific or technological uncertainty. Using products or services off the shelf do not qualify and will cause a claim to be audited if submitted to CRA. As well as the final steps of commercialization, CRA will not take this into account, the final product is not what they are looking for. For example, a software company wants to create a product that is not readily available in the marketplace, nor is the technology known to the company. The formulation, trial, and error to invent this product would all qualify under the SR&ED Tax Credit.
It is important during the SR&ED project that all technical work is documented correctly. CRA wants to see proper documentation to illustrate the work conducted on the uncertainty. Timestamping with a project description will go a long way in filing a successful claim. When we look at the final product during the commercialization process, many companies may have overlooked or even neglected to track what the R&D process was. Again, the sales and marketing outline of a product does not constitute as SR&ED.
Just like technical tracking, it is important to maximize the SR&ED Tax Credit Claim by documenting all T4 employees or subcontractors in Canada who worked directly on the project. Their time put into the project will make up the majority of the SR&ED claim. Thank you, sales, and marketing team but your efforts during the commercialization process do not qualify.
In summary, companies need to understand that the SR&ED Tax Credit Claim is meant to promote research and innovation across Canada through the uncertainties developed by a company. The final product and costs outlined to market the product are not eligible criteria. Maximize your SR&ED Tax Credit Claim by introducing steps to track, document and properly articulate your companies innovation on paper.
Braithwaite Canada will introduce to your team a 7-step process to maximize your companies SR&ED claim by 5%-20%. From detailed technical write-ups, CRA friendly costing templates and filing on your behalf, trust the experts at Braithwaite Canada. For a detailed breakdown of our 7-step process, please click here
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