Every year, over 20,000 Canadian-controlled private corporations, partnerships, and sole proprietorships receive in excess of $4 Billion CDN from the SR&ED tax credit program. Yet, despite that, many people still resist participating in the SR&ED program. Among some of the more common excuses we hear…
“I’m too busy.”
“I’ve got too many things on my plate already.”
“It’s just too much effort.”
“Is it really worth it?”
There’s actual government money at stake, which could be reinvested into your R&D processes. Wouldn’t you want to find out how to tap into that?
5 Common SR&ED Tax Credit Myths
While those above questions deal more with the practical side of claiming SR&ED (which we’ll address later), here are a few SR&ED tax credit myths we often hear:
Skeptical Scott: “SR&ED is a scam or a fraud, or some sort of government plot to find out what we’re really doing behind our tax returns. It’s just more work for me for no real value-add to the company.”
Uncertain Uli: “I’ve heard about this SR&ED tax credit thing, but I’m not sure if my work would qualify.”
Routine Ray: “Nothing we do is extraordinary or rocket science. It’s all routine. All in a day’s work.” This person will claim even the most complex, challenging problems are routine.
Failing Fatima: “But we haven’t completed anything.” “We haven’t solved this problem yet.” “We never solved that problem.” “We tried this and we failed.” “The project’s not ready for market yet.” “It never went into production.”
Profit Pete or Non-Profit Namish: “We make too much money to qualify for SR&ED” or “We didn’t make a profit, last year so we don’t have anything to claim.”
Does any one of these sound like you or people in your corporation? Then you may actually have SRED eligible projects for which you could receive a refundable tax credit. That means you could receive cash in your pocket from the government to recoup a portion of your material and payroll expenses incurred during research and testing.
SRED Unlimited Myth Busters
Real Tax Credits vs. Taxable Income
In terms of Skeptical Scott, the SR&ED Tax Credit program is a real program. The government does hand out real money in the form of a refundable tax credit toward material and payroll expenses incurred during scientific research and experimental development. In fact, in the 2019 Federal Budget, the government actually made it possible for companies that earn up to $10 million to still file a claim and have the potential to receive the full 35%. Companies that earn more than $10 million may file a claim and potentially receive 15%.
To answer Non-Profit Namish or Profit Pete we would say that qualification for SRED is not determined based on whether your company made a profit from your work. In fact, your project doesn’t have to be successful or marketable to be considered for the SRED program. SRED is more about the time and material expenses used, especially those “wasted” during unsuccessful attempts to develop your process or product.
Completion vs. Failure to Solve
Furthermore, to address some of Failing Fatima’s concerns, your project doesn’t have to be completed to be considered for the SRED program; in fact, projects that are ongoing from year to year are the best kind. The project only has to have started within the fiscal year to be included in your claim. Many of our clients have projects that have been claimed over several years and as many as 5 or 6 years because of the difficulties and challenges encountered during SR&ED.
You don’t have to have solved the problem you were facing at all. SRED is more interested in the journey between the start of the project to when you decided to stop working on it, whether you successfully solved the problem you encountered or not. They want to know about the things you tried, what failed, why it failed, and how you used what you learned from that failure to determine the next steps you took.
Standard vs. Non-standard – Finding the Grey Zone
Now, for Routine Ray and Uncertain Uli. True, some of the work you and your team engaged in may seem routine to you, but there may be elements that are less-than-standard which a skilled SRED Unlimited consultant can unearth during their technical interview with you. They ask very specific questions that are designed to uncover savory bits of research and development that will maximize your claim. In the hands of the right interviewer, you may discover that your more routine work may not have been as routine as you thought.
Why you need SRED Unlimited
SRED Unlimited specializes in making the SR&ED claim submission process as painless as possible. No one likes extra paperwork? Plus, there are many Uncertain Ulis out there who are confused about exactly what qualifies for the SR&ED tax credit. Others don’t know what kind of information the CRA is looking for in a qualifying, successful scientific research and experimental development claim submission.
That’s why you need a free 15-minute consultation with a SRED Unlimited consultant. Your consultant will explain the percentages of what you could receive for various eligible expenses and help identify possible SR&ED components of your project work or areas to explore. Your consultant will also set you on the right path with easy-to-comply-with tracking paperwork for each project to smooth the process for future claims.
Just 15 minutes is all you need to get started—15 minutes that could have a huge impact on your annual R&D cash flow.