What is a SR&ED Claim?

Why would you care what a SR&ED claim is as a business owner? How about getting 68 cents back on every dollar spent as a cheque from the government! You got it – it’s one of the best ways to help fund your company’s growth.

One of the most lucrative funding programs for businesses offered by the Canadian government is the Scientific Research and Experimental Development (SR&ED) tax program. Over $4 billion dollars is ear marked each year for the program

The name "Scientific Research and Experimental Development" does sound a little intimidating, but it really comes down to solving problems that have a technological component to them. The government did not want to call the program "Research and Development" (R&D) as it felt R&D could also mean solving problems through the "bumble and stumble" methodology which they did not want to pay for.

The idea here is that you need to follow a "scientific" approach to solving the problem and not just run around like a chicken with its head cut off. Now that’s not so hard is it? The government isn’t expecting you to make your employees wear white lab coats and behave like academic researchers – you just need to show that you followed a logical process in trying to resolve the issue.

It boils down to attempting to overcome a technological uncertainty where over coming that technological uncertainty is not readily known. Wow, that was unclear but that’s part of the issue in claiming SR&ED! I can’t emphasize enough that there is a BIG GREY AREA as to what qualifies and what does not. The absolutely subjective things that the CRA looks at include

  • "what was readily known at the time?"
  • "what exactly constitutes something being a technological uncertainty?"

Consequently, a lot of it comes down to "opinion" on the part of the CRA. What that means for you is you need to make sure you present the technological uncertainties and the technological limitations and barriers in the clearest possible manner. But that is a topic for a different post.

So what types of things qualify for this tax credit?

Well, the work has to have a technological element to it (i.e., you’re not going to be able to qualify a new hairstyle your salon has come up with!). There has to have been a technological problem that you came across, where you tried to do something about it. And the answer to the problem was not readily known (i.e., you could not have just done a Google search, found the answer and fixed the problem).

Here are a few examples of things that have successfully qualified for the SR&ED tax credit that you might not have thought of:

  • Printing companies that acquire new printing equipment where they try to push the equipment beyond its intended use.
  • Manufacturers that purchase machinery where they have to a modify that equipment in a non-standard way
  • Having a product work with another product where those two products were not designed to do this.
  • Using a new version of a program or tool where problems arise that you try to work around.
  • Software development where you are building something new or you are using a new tool set for the development.
  • You are building a web site where there are some new and cool features being developed that are not commonly available.

Once again, even the above examples are not clear cut and depend on the specific circumstances and technological fact pattern in order to make a final determination on eligibility. To make a determination you really need to work with someone who specializes in helping companies with their SR&ED claims. In addition, working with someone is the best way to ensure you are maximizing the dollar you are getting in your claim.

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