On average, the CRA receives 20,000 claims a year from Canadian-controlled private corporations, partnerships, and sole proprietorships. And, again on average, the government will issue over $4 Billion CDN through the SRED tax credit program.
A couple of the most common questions we get asked is “what makes a good SR&ED project” or “how can I make sure that our SR&ED claim gets approved”. There is never a guarantee that any SR&ED claim submitted will always be “accepted as filed”. However, the right SRED Consultant can ensure your claim write-up contains certain fundamentals of scientific research and experimental development which can increase the likelihood that the CRA will approve your claim.
SRED Tax Credit Screening Process
The CRA has a screening team that takes a quick look—approx. 20-30 minutes—at every single claim. This screening system is a combination of computer and manual algorithms that will look at whether your project write-up demonstrates that you understand what SR&ED is. More specifically, does the project write-up answer “yes” to 5 SR&ED eligibility questions:
- Was there a scientific or a technological uncertainty?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
- Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
- Was a record of the hypotheses tested and the results kept as the work progressed?
What is the definition of SR&ED?
As with most government-related programs, definitions of eligibility and what information they’re looking for is not always clear. Because the program covers a range of completely different industries, the definitions have to be broad enough to address all of them.
But fundamentally, scientific research and experimental development is about developing new knowledge which is gained through the journey, the process of developing a technology, service or process – not about the product itself.
A project that’s the “only one of its kind in the world” does not, in and of itself, qualify for SRED. SRED is not about the sales pitch. You don’t have to sell the CRA on the uniqueness of your product/service/device and why your product deserves to be funded.
The CRA doesn’t care why your product/service/device is better than your competitors’. CRA reviewers don’t care if your product ever reaches market. They don’t care about the success or “value add” or uniqueness of your product in your industry, city, province, country, continent or the world. SRED reviewers are not looking for new technologies or products which were generated based on your expertise in a given field.
They are looking, instead, for the knowledge you generated during the development process, as you worked on solving certain obstacles or challenges, where your knowledge or knowledge from subject matter experts couldn’t help you get to the end of your project. The end of your project could mean you actually completed a commercially viable product, or you decided to abandon work on the project since a solution couldn’t be found, despite your efforts.
Describing the marketing advantages of a product rather than the knowledge generated during the developmental process is the main mistake companies make when they try to prepare their own SR&ED claim.
Why you need a SRED Tax Credit Consultant?
The write-ups need to be written in such a way that it’s easy for the CRA reader to see that, yes, there is SR&ED here and that the answer to each of the 5 questions is clearly “yes”.
Product developers and engineers tend to have a certain vocabulary about their product development processes, which obviously can vary from industry to industry. While these terms or concepts may be commonly understood amongst the industry, they can be quite different from SRED concepts.
It is also often difficult for product developers to understand that their commercially marketable product work may not actually be the SR&ED. A SRED tax credit consultant will be able to identify which components or areas of work in the overall development work done on a product is actually scientific research and experimental development. They will also know how to emphasize the technological advancement and knowledge gained through the developmental journey of a project or product rather than the unique marketing angle or features that no other product has.
Your SRED tax credit consultant can help you identify the difference between a business objective or product development objective and a SRED objective. Their specific questions are designed to determine at which point during your R&D or product development work SR&ED work actually started.
Your consultant knows how to turn failed and abandoned or “conceptual” prototype-only projects into tax credits for your company.
Your consultant knows the difference between trial and error versus systematic experimentation, and between routine engineering and SR&ED.
Not knowing these kinds of concepts and information SRED reviewers are looking for can cause you to miss out on valuable eligible refunds. An experienced SRED tax credit consultant knows how translate your work and jargon into the language the CRA is looking for.
Why you need SRED Unlimited
The SRED tax credit program is a kind of web unto itself. It’s a collection of interconnected and nearly invisible—or confusing—lines to unsuspecting business owners. An experienced SR&ED Unlimited consultant can help you tiptoe around the stickiness of interpretation of SR&ED tax program guidelines.
It’s not uncommon for us to hear a client say “I don’t think this will qualify” and yet, through our customized information gathering approach, we manage to unearth a project that’s worth several thousand dollars in tax credits.
SRED Unlimited Consultants are experienced and have expertise and industry knowledge in food and beverage industries, software engineering, computer science, telecommunications tech, clean tech/power generation, manufacturing, medical/dental and other healthcare related technologies, and more. This knowledge base means that our consultants know better which questions to ask to identify knowledge gaps and technological uncertainties within a given industry, and present that information in the claim.
Your consultant will explain the percentages of what you could receive for various eligible expenses and 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.