Innovation, creativity and ingenuity are what drive most businesses. If businesses don’t innovate to keep up with or anticipate market trends, they can’t move forward and can get left behind.
For most businesses, innovation has to do with building a product that is unique to the market, that no one in the market has done before. A product that provides an impactful and effective solution to an existing problem and results in high user satisfaction.
Innovation doesn’t have to be huge and complicated. It can also manifest in smaller, less obvious ways.
What’s often forgotten about in the hoopla and energy poured into the development and marketing of a new product or service is the technological knowledge generated during the whole development process.
New knowledge is really the unsung hero behind any successful or unsuccessful project development work.
Business Innovation Versus Knowledge Innovation
Innovation often generates new knowledge.
This new knowledge can happen when:
- a company encounters an unforeseen issue in their development of a product that they’re not sure how to solve;
- a company is trying to push the boundaries of what available technologies allow them to do;
- a company encounters a problem which doesn’t have an off-the-shelf solution or for which a solution can’t be found by simply googling it;
- a company is trying to combine several different components together in a way they weren’t designed or intended for.
In these cases, there is the potential to submit an SR&ED claim for the time and materials invested in generating that knowledge.
When R&D becomes SR&ED
Many assume a business or R&D project is automatically an SR&ED project. There is a distinct difference.
Business innovation typically emphasizes delivering a marketable product or service. SR&ED innovation focuses on the knowledge generated during development of that product or service.
In fact, one business innovation project could have several SR&ED-eligible projects. Each individual problem encountered, which had a separate obstacle or objective that needed to be solved in order to complete the bigger business project, could be considered a separate SRED project.
Knowledge Value, Not Market Value
The CRA isn’t interested in the market value of your product, how innovative it is, how different it is from anything else on the market, or about user satisfaction. The CRA is interested in the knowledge value.
New knowledge is really the cornerstone of innovation, not the commercial success of a product. Someone sees a problem and decides to do something to address it. But there are often gaps between the material, ingredients or technology available and what’s actually needed to create the new product or innovation. It’s the scientific and technological advancements that have brought that product to life.
In fact, your development project doesn’t even have to succeed in generating new knowledge. Failure counts. Someone once said that failure isn’t really failure if you’ve learned something. It’s often failure that produces the most knowledge innovation that can be carried forward into future work. You learned 2000 ways how not to make a lightbulb.
How SR&ED Fosters Innovation
SR&ED is a Canadian government tax incentive designed to support businesses who conduct research and development that leads to new knowledge and technological advancement and challenges the limits of innovation. This new knowledge serves as a foundation for the business’s future.
When there is a knowledge gap between the currently available materials or technologies and how the company envisions potentially reaching the final result needed, there is often a continuous process of experimentation, observation, discovery and refinement before moving on to the next step of the process (what SR&ED calls “iteration”).
When companies need to step outside the conventional “box” of their industry or push the boundaries of available technologies to address a problem encountered during their development work, it is often a sign of a technological risk.
The SR&ED program supports businesses by offsetting some of the financial risk that comes with this kind of iterative experimentation.
The knowledge generated through that iterative experimentation provides a stepping stone for future advancements.
Your business doesn’t have to be developing the next groundbreaking product to potentially qualify for the SR&ED program. Incremental advancements count, too. In fact, in today’s rapidly evolving business landscape, businesses can’t risk simply resting on the laurels of their mainstream groundbreaking products, but need to continue innovating and improving upon that technology.
Making a Claim with SRED Unlimited
The SR&ED program is not a “new wonderful product” program; it’s a knowledge program that can empower businesses to innovate, experiment, and continue creating knowledge needed for lasting success. Many companies reinvest the refund or tax credit into further SR&ED work to continue developing innovative solutions that will shape their future and the industry sectors that they serve.
SRED Unlimited works closely with you to explore all possible avenues to maximize your SR&ED claim. This includes identifying additional eligible expenses, advising on how to break up bigger, “umbrella” or “blanket” projects into smaller ones to make the claim more defendable, and ensuring that claims are structured and appropriately worded to capture the fullest scope of eligible work. This comprehensive approach ensures that your company can capitalize on your claim to the fullest extent possible.
To explore how your company’s knowledge innovation efforts could qualify for SR&ED tax credits, book a complimentary consultation session with SRED Unlimited.
