Are you and your team doing something cutting edge, something innovative? If so, then you've likely heard about Canada's Scientific Research and Experimental Development program — SR&ED.
SR&ED is a mission-critical, CRA-administered program that provides billions in investment tax credits (ITCs) to incentivize thousands of Canadian companies to take risks and spend money to advance their scientific and technological knowledge and capabilities.
This SR&ED ITC funding comes in two forms: cashback or tax credits that reduce taxes payable. What expenses are eligible? How do you go about claiming your expenses? Questions like these immediately arise, leading to numerous Google searches and folks trying to make sense of the lengthy SR&ED criteria.
Here Are 10 Costly Misconceptions We Still See
1. The SR&ED program is only for technology companies.
Truth: Companies of all industries can apply.
2. If my company is profitable, we can't claim SR&ED.
Truth: Profitable companies can apply.
3. My science or technology project needs to be successful to claim SR&ED.
Truth: It is the intent (and process) of your SR&ED project that matters, not its success or failure.
4. We need a lot of documentation to apply.
Truth: The more documentation the better, but few companies track their expenses perfectly before coming to us.
5. All we are doing is routine software development, nothing special. It's not SR&ED.
Truth: What is "routine" to one software engineer may not be routine to another. The SR&ED program isn't only for "revolutionary" development. Many SR&ED claims are about incremental improvements.
6. We are a public Canadian company, so we don't qualify for SR&ED.
Truth: Public companies can claim SR&ED. They just don't qualify for the enhanced rate and the cash back (refundable) Investment Tax Credits.
7. My company is too big (or too small) to claim SR&ED.
Truth: Companies of all sizes can claim SR&ED. There is no minimum size of a SR&ED claim.
8. I only used a contractor for my R&D work, so their wages aren't eligible for SR&ED ITCs.
Truth: You can claim contractors as eligible SR&ED expenses so long as the work is done in Canada by Canadian companies or individuals.
9. My accountant can do my SR&ED claim.
Truth: A SR&ED claim requires more than paperwork. Framing your project requires deep understanding of the program and technology, which demands technical experts and engineers, not just accountants.
10. We save money doing our SR&ED claims in-house.
Truth: SR&ED claims take considerable time to complete, diverting resources from product development and customer acquisition. Managing an audit also requires significant effort. Engaging an expert provider can result in better returns for your claimed expenses.
If you had any of these misconceptions, you were in good company. The program is complex. It's why our firm exists, and it's our continuing mission at ENTAX to clarify the SR&ED landscape and empower Canadian entrepreneurs who innovate.