When you commission a review of your SR&ED application, you’ll be getting much more than a quick eligibility check.
Environmental companies seeking to optimize their gain from this valuable tax credit are often surprised to find that the key to a successful application is strong documentation of R&D activities.
Is our R&D activity eligible for the SR&ED program?
When you apply for the SR&ED tax credit, it really helps to understand what activities in the environmental sector qualify as research for purposes of this tax credit and which expenditures are eligible.
Use our tool to see if your work in the environmental sector might qualify for the SR&ED program.
Federal, territorial and provincial governments use increasingly stringent regulation to respond to new environmental risks, and businesses must innovate if they are to stay competitive. The Canadian government offers the SR&ED program to stimulate such technological advancement, supporting companies as they carry out iterative R&D to mitigate emerging risks to soil, air, groundwater and marine environments.
Our SR&ED calculator can give you an idea of what your SR&ED claim might be worth.
Projects in the environmental sector that could be eligible for the SR&ED tax credit
These are some examples of R&D projects that may qualify for Canadian SR&ED.
Innovative response to change in emissions regulations
A provincial government introduced regulations that limited VOC emissions. Two manufacturers both realized that their production lines exceeded the permitted limits.
In response, the first manufacturer installed commercially available equipment to reduce VOC emissions. This solution would not qualify for the SR&ED program as it is just routine implementation.
The second company redesigned its production process so that it emitted less VOCs, while maintaining quality and throughput. This approach involves uncertainty: the company did not know whether modifying the chemistry of its processes could reduce emissions, nor whether the alternative catalysts can be used at commercial production scale.
While redesigning the production process, the company:
- developed multiple process configurations
- conducted laboratory and pilot-scale trials
- tested alternative catalysts and reaction conditions
- measured emissions, yields, and product quality
- analyzed results and iterated designs
This iterative approach means the project could be eligible for the SR&ED program. The company retained the services of an SR&ED consultant throughout, and benefited from guidance in the design and documentation of their R&D work to make claiming easier, and advice on maximizing their eligible SR&ED expenditure.
It’s important to note that an objective of regulatory compliance in itself is not among eligibility criteria for the SR&ED program. The efforts to resolve technological uncertainty is what makes this project potentially suitable for this tax credit.
Removing PFAS with membrane technology
A small environmental consultancy enterprise saw an opportunity to improve treatment processes for industrial wastewater amid concerns about emerging contaminants including PFAS (also known as forever chemicals). Existing treatments don’t remove PFAS reliably.
The enterprise thought that there might be a solution in membrane technology, but there was uncertainty about how this could be achieved.
The enterprise commissioned pilot testing and work to modify the designs of existing membranes, while trying different chemical treatments of wastewater. The performance of the treatments and membranes were analyzed and optimized.
Ultimately, the enterprise did not find a workable solution using the membranes it had developed, but its research work could still be eligible for SR&ED. The program could help the enterprise to protect its cash flow so that it can try a different approach to this environmental problem.
What sort of companies can benefit from the SR&ED tax credit?
The SR&ED program incentivizes innovation in Canadian companies of all sizes.
Companies specialising in environmental technologies are an established category in the SR&ED claims reviewed by the CRA. Around 4% of the R&D tax credits that the CRA awards to companies go to entities in the environmental sector; and one third of allowed SR&ED claims come from small businesses with a turnover of less than $4million (Source: Government of Canada SR&ED annual programme statistics).
Common mistakes in applying for the Canadian SR&ED tax credit
There are five typical mistakes that cleantech companies make when applying for the SR&ED tax credit. They are:
- missing the deadline
- lack of clear project description
- discrepancies in financial reporting
- lack of supporting documents
- including ineligible activities in their claim
Our article on common SR&ED claim mistakes includes recommendations that will help you to avoid these SR&ED pitfalls.
We would always recommend engaging an SR&ED consultant before making your claim. We don’t charge up front, so there is very little risk to you from engaging an SR&ED adviser. To find out more, book a call with Canadian SR&ED.
Supporting business that contribute to the world through R&D