Canada Revenue Agency, in partnership with the Canadian Government, has been working meticulously to award companies participating in Scientific Research and Experimental Development for the promotion of national innovation in Canada. This practice dates back as early as 1944, when companies could deduct 100% of their scientific research expenditures from their taxable income. Since then, through several revaluations, Canada has optimized its SR&ED credit calculation and program to ensure businesses are getting the maximum possible return for their R&D efforts.
The SR&ED credit program provides companies and businesses the freedom to conduct research while minimizing the company’s liabilities for the research. This credit is equivalent to a portion of the R&D tax credit qualified activities a business incurs related to the specific research project at hand. These qualified expenses are more inclusive than popular belief including the likes of employee and supervisor salaries for those involved in the project, a significant amount of supplies and materials used as well as any contracted or third-party expenditure incurred in the process.
For example, the food industry could have several projects that involve basic research, applied research or experimental development. Any of these projects including scientific or technological advancement, uncertainty or content could be applicable to this program. Other efforts such as new product, packages or development processes, technical procedures as well as improvement could also qualify for such project. Hence, this credit is not limited to any specific industry or sector if it simply abides by the following four-part test.
A business can conduct a simple four-part test to determine their qualified R&D activity. This eligibility is in fact heavily dependent on the research and project itself.
This four-part test can help you determine if your project qualifies for the SR&ED program:
- Elimination of Uncertainty: The project must be in attempt to eliminate uncertainty about the development or improvement a product or process and cannot be a change for aesthetics solely.
- Process of Experimentation: Experimentation is critical as it must be demonstrated that the alternatives have been evaluated and tested for through either modeling, simulation or systematic trial and error or through other avenues.
- Technological in Nature: The research qualified for this credit program must also lie within the hard sciences, including engineering, physics, chemistry, biology or computer sciences. In other words, no matter what the end use or purpose of this research, the process and method which is being researched must be scientifically backed.
- Qualified Purpose: The end goal and purpose for this project must be to improve a specific product or process resulting in higher efficiency of performance, function, reliability and or quality.
Some qualified activities may include:
– Developing prototypes of new equipment or experimenting with now improved equipment
– Patent applications
– Additive equipment to improve processes
– Streamlining of manufacturing processes
– Development of software or enhancements on existing technological aids
– Enhancements to processes to support green initiatives and make businesses more environmentally friendly
– HVAC concept and design
– Testing of new concepts and technology
This program provides incentives for Canadian businesses to expand their capacity and production while also contributing to the Canadian economy at minimal direct expense. The SR&ED program alone also accounts for the single largest federal government support for industrial research and development encompassing over $3 million worth of expenditures claimed.
EVAMAX specializes in consulting firms for their SR&ED projects, preparing their SR&ED applications and follow up process right through to the credit reimbursement. Contact EVAMAX today to find out how you can take your business to the next level through the SR&ED tax credit program.