Scientific Research and Experimental Development (SR&ED) is a tax incentive program administered by the Canada Revenue Agency (CRA) that rewards companies for solving technological challenges and improving the economy through research and development.
Tax incentive programs such as SR&ED are governed by the Income Tax Act. SR&ED prosecution is defined to be, “…a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis… for the advancement of scientific knowledge… or for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products, or processes, including incremental improvements thereto…”.
In contrast to other government support programs, SR&ED does not have a cap on how much it will reimburse you: If your project meets the program’s eligibility requirements, you will receive the full financial benefit in the form of an investment tax credit (ITC) and/or a cash refund.
SR&ED is a great program for companies who have faced technological challenges; You may be wondering, “how can our company make use of it?” Through this guide, we will look at what makes your work eligible for SR&ED, why it was commenced in the first place and how it was carried out.
Determine Why the Project Was Undertaken
Your business project may require you to undertake a development project, and these development activities are what you should look at when considering SR&ED. It must be deemed that you could not resolve a scientific or technological uncertainty by applying your existing knowledge or applying publicly available solutions to your situation in order for your development project to be considered SR&ED.
Moreover, to be eligible, a project must meet the following:
- There is a gap in knowledge between your project starting point and your project objective; and
- You are unable to bridge this gap using your current knowledge or what’s available in the public domain.
In summary, SR&ED’s goal is to advance our understanding of science or technology and to close this gap by acquiring new knowledge so that we can create new science and improve existing technology. Describe how known methods could not overcome the limitations in the underlying scientific or technological understanding. SR&ED must meet this requirement for a project to be considered.
How the Project Was Performed Must be Determined
So, you’ve clarified that the tools in your existing toolbox are not capable of achieving the desired project objectives. The next step is to determine how you would solve the problem. It is very important that the process you took in trying to overcome your uncertainty was methodical in nature and follows the “scientific method”. It may not always be clear whether a project aligns with the scientific method within a business context, but it is essential that the process you adopted to address your uncertainty is following a methodical in approach.
In a nutshell, that’s the scientific method or how SR&ED works: you followed a logical sequence of steps designed to overcome your scientific or technological uncertainty in order to produce new knowledge and to make a scientific or technological advancement. Describe what scientific method you used to solve your problem. Another requirement for SR&ED will be met if this is accomplished.
How to Apply for SR&ED Tax Credits
Based on this newly acquired knowledge, anyone who has ever used a methodical and logical approach to accomplish science or technology development projects (why we did the work) may be in the world of SR&ED. The professionals at Mentor Works, a Ryan company, are ready to help your business identify and take advantage of those SR&ED projects so you can become more competitive in the future.
Mentor Works is a business support organization specializing in Canadian government funding. The Ontario-based business has helped hundreds of businesses build and execute their funding strategy through a mix of federal and provincial government grants, loans, and tax credits. Mentor Works offers free online resources, funding webinars, and news via their website at www.mentorworks.ca.
Author: Nathan Chick