Scientific Research & Experimental Development (SR&ED) tax credits can be a valuable financial tool for businesses engaged in research and development (R&D). However, misconceptions surrounding this program may result in businesses losing out on real money. Let’s debunk some of these common SR&ED myths.
SR&ED Myth #1: The SR&ED Tax Credit Program doesn’t really exist
The SR&ED Tax Credit Program is a real program with real money going out to real companies.
SR&ED tax incentives program is a generous and broadly applicable research and development tax credit. In fact, it is the largest single support program in Canada- providing over $4 billion in tax incentives through more than 20,000 claims annually.
CCPCs are eligible to receive a 35% refundable tax credit, and applicable foreign companies or non-CCPCs may be eligible to receive a 15% non-refundable tax credit to offset any corporate taxes owed when applying with qualifying person-hours and wasted material expenses.
SR&ED Myth #2: It’s not really worth the effort.
These real companies say different.
The SR&ED tax credits received by Foster Interactive enabled them to recover some of the costs related to the web development work that pushed the boundaries of the industry. [source]
SR&ED tax credits have provided Beary Berry Honey with the financial assistance to keep researching new product ideas that have not been done with honey to date. Their work has allowed them to introduce new honey-centric products to the market and expand their customer base year over year. [source]
And the significant SR&ED refund received by Novah Healthcare allowed them to invest more money back into their growing business. As a new company that’s still finding its footing, this injection of cash mitigated some of their financial stresses so that they could focus on developing the company’s services and growth. In future, they intend to further invest in equipment and pay for renovations to increase the capacity of the clinic. [source]
You can discover these stories, along with numerous others, on our page dedicated for testimonials.
SR&ED tax credits can help to offset the substantial costs associated with R&D, thereby enabling and promoting innovation and growth for eligible Canadian companies.
SR&ED Myth #3: SR&ED is only for high-tech companies
One of the most common misconceptions is that the SR&ED program is solely for technology or computer software companies. However, the SR&ED program covers a broad range of industries.
This includes sectors such as:
- Accountants
- Aerospace
- Agriculture
- Automotive
- Biotechnology
- Breweries
- Cannabis
- Chemical, Oil & Gas, and Alternative Fuels
- Civil Engineering, Construction, and Infrastructure
- Cleantech & Sustainable Energy Environmental
- Cosmetic Science and Personal Care
- Dental
- Distilleries and Wineries
- Electrical & Power Generation
- Food and Beverage Processors
- Healthcare, Medical, and Pharmaceuticals
- Life Sciences
- Manufacturing
- Printing
- Restaurants, Bakeries, and Brewpubs
- Telecommunications, Satellites, Cameras, and Radios
Most businesses follow standard design methods, techniques, procedures, protocols, and practices when developing products or processes. Any Canadian-controlled corporation that is involved in systematic investigation, innovation, or research may be eligible for SR&ED tax credits. If your team has been working in development and have encountered unexpected roadblocks or obstacles which couldn’t be solved using normal or accepted methods, you may have eligible expenses that can be claimed.
SR&ED Myth #4: SR&ED is only for successful projects
Another common misconception is that only successful R&D projects qualify for the SR&ED program. In reality, the SR&ED program supports experimental development, which includes work undertaken for the purpose of achieving technological advancement to create new materials, devices, products, or processes, or to improve existing ones. It does not matter whether the project ultimately succeeds or fails; what matters is the scientific or technological knowledge gained during the journey of the project.
The end goal ultimately for the business is a marketable product, but in SR&ED, the end goal or objective is more centered on what you learned about your technology/process along the journey to create that marketable product – and there may be more than one of these moments over the course of product development.
When you reach the point in your product development where you don’t know how to get any further in that development process, then, in SR&ED terms, you’ve hit your technological wall. Your “technological objective”—which is one of the 6 questions a project claim must answer—then, is solving that technological problem. That may take several steps along the way. One of those steps may even introduce a completely new technological problem that was totally unexpected and unpredictable.
It is, in fact, possible for an overarching, umbrella product development project to not have any SR&ED in it just by itself, but generate several smaller projects, or technological obstacles along the way to developing that overarching project. Some projects are broken into phases, which may also have multiple technological challenges. As long as there is a separate technological problem, there is a potential for a separate SR&ED project claim.
SR&ED Myth #5: My business is too small/big to qualify
In many businesses, size matters, but not for SR&ED. Size does not determine eligibility for SR&ED tax credits. The SR&ED program supports businesses of all sizes, from startups to established corporations. It’s the R&D work undertaken that matters, not the size of the company.
For small companies, there can be intimidation in not only in figuring out what part of their work counts for SRED, but also confusion over how to fill out the paperwork. And it’s difficult to take time away from business activities to keep their business afloat. For larger companies, who potentially have many qualifying projects, the issue is trying to unearth the details buried in more standard R&D work that could qualify, and the lack of employee time available to prepare the large volume of reports for the claim.
The SR&ED tax incentive experts at SRED Unlimited can identify eligible R&D expenditures that other consultants might miss. We also minimize the intimidation factor by managing the entire claim preparation process by collecting details from involved employees, writing reports, compiling SR&ED-eligible expenditures, and submitting the approved claim on your behalf.
SR&ED Myth #6: The SR&ED application process is too difficult
Preparing any paperwork for the CRA can be daunting. The prospect of preparing the report(s), and filling out the SR&ED tax schedules without knowing for sure if you’re submitting what the CRA needs can be particularly intimidating. That’s why you need SRED Unlimited.
SRED Unlimited has trusted consultants who have expertise both in SR&ED and in most SR&ED industries and sectors. We can translate your work into the language that the CRA is looking for and unearth potentially qualifying and valuable segments of ordinary R&D work that you might miss preparing the claim yourself. This helps maximize your claim and potential refund or tax credit.
Let us save you many productivity hours by doing the leg work of the application preparation process for you.
Don’t let rumours that you may have heard about the SR&ED program stop you from getting the benefits for your innovative ideas. The SR&ED tax credit program is a valuable and indispensable resource for many Canadian businesses involved in research and development, across all sectors just like yours.