What is SR&ED?
SR&ED is a tax incentive program run by the CRA to support Canadian businesses taking part in scientific and technological research and development. This support is in the form of tax credits or cash refunds.
Am I eligible for SR&ED claim?
Businesses of any size and type can make an SR&ED claim.
The CRA looks at the purpose and method of the R&D to determine eligibility. If your SR&ED project involves an uncertainty (a problem which could not be solved with existing science and technology) and a systematic approach to overcome that uncertainty resulting in advancement of science and technology, then you are most likely eligible to claim SR&ED.
Does my project need to be successful to be eligible?
The success, scalability or commercial use of an R&D project does not determine its eligibility for SR&ED. As long as you have achieved advancement, it is enough. It should be realized that multiple failed attempts at resolving an uncertainty are also considered advancement. This is because these attempts have eliminated possible solutions to the problem.
Is R&D the same as SR&ED?
R&D can relate to any field; whereas SR&ED is limited to R&D in science and technology. For example, market research to launch a new product is part of R&D but it does not fall under SR&ED.
Does my business need to be successful to claim SR&ED tax credits?
No. Your business does not have to be making profit, or even involved in sale and purchase to be eligible to file an SR&ED claim.
Will I receive tax credits or cash refund?
This depends on your taxable income as well as the type of business you are.
Generally, a Canadian Controlled Private Corporations (CCPC) can receive up to 43% of their eligible expenses in tax credits which are cash refunds. Other corporations (such as PLCs and foreign controlled corporations) are also eligible to claim up to 20% of the relevant costs. However, they cannot exchange their tax credits for.
What expenses can I claim?
You can claim any expenses arising from your SR&ED project. This can include payments to contractors; materials consumed or transformed during an eligible R&D activity; or payments to staff directly working for SR&ED activities. Depending upon the method used to process SR&ED claim (traditional or proxy) even the overhead costs can be reclaimed under the Canadian SR&ED program.
How do I calculate my SR&ED expenses?
These can be calculated using the traditional method where you claim all your expenses whilst particularly identifying your overhead costs, or the proxy method can be used where a formula is applied on your overheads, which allows you to gross up the T4 salary expense to 155% of the actual salaries and wages paid to the relevant workers.
How do I file my SR&ED claim?
To file a claim, you need to file an income tax return along with form T661 and other supporting documents. We strongly recommend you consult an SR&ED professional before filing your claim in order to reduce the risk of your claim being rejected. This is where we come into the picture as your team of SR&ED experts will assist and guide you regarding your SR&ED claim preparation, submission. This includes dealing with any CRA Audits in case your SR&ED claim is selected for a detailed review by the CRA.
What happens after I have filed my SR&ED claim?
After your claim has been filed, the CRA will decide if it can be processed. If your claim is processed, you receive the tax credits or refunds to which you are entitled.
Sometimes, the CRA might decide to review your claim. They might ask for more information or documents which need to be submitted in reasonable time. After submission, the CRA decides whether your claim is to be processed.
And sometimes, the CRA decides that your undertaking does not fall under the SR&ED program and rejects your claim.
How long will CRA take to process my SR&ED claim?
It can take around 90 days to process a normal SR&ED claim and about 180 days to process a claim that is chosen for review. This assumes that you present any additionally required documents and proofs were to the CRA on time. Some claims can even take a whole year to go through. This is often the case with failed claims.
What do I have to pay?
SR&ED consultancy firms billing arrangements are typically contingency based -- and we're no different. You only pay if your claim gets approved and you receive the money you are eligible for. We charge a small percentage of your SR&ED refund. It varies between 15% and 30%, depending on the size of your business, complexity of the claim and final refund amount.
What is SR&ED claim financing?
SR&ED claim financing is basically a loan taken from a financing company against your future SR&ED refund. This facility is available for those firms who want money immediately for emergencies, expansion or further research purposes and cannot wait till the claim approved and paid. Please visit SR&ED claim financing section of our website for further details about the assistance we offer to get your SR&ED claim financed.
In case of further queries, contact us to make an appointment for a one-on-one meeting with any of our skilled team members.