Top 5 SR&ED Program Myths, And How A SR&ED Consultant Can Help

Fact: There are two factors at play that protect your valuable intellectual property. First, the approach CRA utilizes to assess your filing is such that they only seek to validate that your claim meets the three key eligibility criteria (demonstrating technical uncertainty, technical content, and technical advancement).

In most cases it is not necessary to disclose all of the technical details associated with your project in order to satisfy these criteria and qualify for SR&ED, you simply to explain the fundamental principles of your technology advancement and how you arrived at it.   Secondly, your documentation is held at a controlled-access location by the CRA, and there are very strict and formal policies regarding the handling of claim information.  You can be confident that the CRA places the confidentiality of your filing as a very high priority and that your technological advancements will remain private.

Fact: Many people believe that their company many not be eligible for SR&ED because they perform no scientific research. While that may indeed be true, SR&ED stands for Scientific Research & Experimental Development, and it is the "Experimental Development" portion of the program that many companies do actually qualify for. Any time work is done by qualified personnel to resolve a technical problem by means of a systematic experimental approach, and a learning or advancement in knowledge has been made, a project can qualify. These criteria are often quite different from what most think defines eligibility, and as a result, this causes many companies to underestimate their eligibility and miss out on substantial funding that they may have earned. In fact, many of the day-to-day activities a company engages in to remain competitive in the marketplace often qualify. Under these criteria, you can quickly see that eligibility opens up to virtually all industry vertical markets, such as industrial manufacturing, food sciences, agriculture, cosmetics, and more, all of which are markets which many traditionally consider as "low-tech".    Consider having a qualified SR&ED consultant provide you with a free evaluation of your projects to assess the eligibility of your company's projects.

Fact: The Canadian SR&ED program is in fact one of the most generous in the world today. In Ontario, for example, the eligible labour costs that can be claimed for the SR&ED program can provide up to a 73% return to qualified Canadian Controlled Private Corporations. This means that for every $100K of salaries paid to qualified employees who assist you with your eligible SR&ED activities, you could be eligible to receive up to nearly $73K as tax credit and/or cash refund *.   Projects involving several qualified team members can quickly add up to claims exceeding several hundred thousand dollars in expenses. SR&ED claims for typical mid-sized companies generally only require about 4-6 hours of a client's time when executed by a consultant.  It's difficult to find a better return on investment than that!  TSI's proven SR&ED process makes it easy.

* In this example, we use an Ontario-based Canadian Controlled Private Corporation filing using the proxy method.

Fact: One of the common misconceptions about the SR&ED program is that projects need to be successful to qualify. In truth, projects that have failed for technical reasons often make the best type of SR&ED projects, as they typically inherently meet one of the three eligibility criteria (i.e. that of technical uncertainty).  Failures are common on the path to technical advancement…it's all about what one learns from those failures and what knowledge one seeks as an advancement that enable you to qualify for the program. In this way, the government reduces the burden of risk on companies who strive to develop new products and processes by compensating them for their efforts.

Fact: The CRA simply wants to ensure a company has some level of contemporaneous documentation that corroborates the work that was claimed, and that the work claimed was actually done in the fiscal year being claimed. To assist CRA in validating these requirements, only several key elements are needed. First, a method of tracking time spent working on eligible SR&ED activities is important. Whether that method be the use of simple paper time sheets or a full-fledged time tracking software system, it doesn't really matter. Whatever technique best fits in your company's culture will work. Secondly, a record of key technical problems, and any experiments/tests conducted to resolve those problems is important. This can be done via a simple 'problem log sheet' or 'design of experiments' sheet, or simply by jotting these items down in a dated daily journal.   Lastly, any other dated supporting information is helpful, such as drawings, schematics, test reports, meeting minutes, or even emails. These documents can demonstrate to a reviewer that there was indeed a systematic approach to solving problems and a progression toward an advancement. Most companies keep these latter records as a daily part of their business, so it is simply a matter of ensuring copies are kept and filed for the purpose of SR&ED. Note that CRA is aware that first-time claimants for SR&ED may not be able to produce comprehensive documentation, and as such, will work with claimants to develop alternate methods by which the claim can be substantiated.  Also, as part of your filing, consultants can assist you in setting up a simple-to-use and yet effective time and document management process that requires minimal effort to execute and maintain.   You'll quickly see that the documentation requirements to support a successful SR&ED submission are not as onerous as you might initially think.