27 Nov / 2020

Things you should know about SR & ED tax incentive

Are your operations based in Canada and focusing on development that is experimental or research that is scientific? The assumption is that you benefit from Tax Incentives provided by the Scientific Research and Experimental Development (SR`& ED). It is exclusive support from the Canadian Government to encourage research and development initiatives by individuals, partnerships, and corporations. 

The SR& ED tax incentive benefits research and development processes that yield outcomes, substance, procedures, and enhanced appliances or innovations. The income tax Act Subsection 248(1) outlines the specifics. The research and Development part of the SE & RD determines whether your work is compliant to benefit from the tax incentive. 

Your research and development expenditures will attract the SR & ED tax incentive in addition to the investment tax credit. These benefits reduce the tax bill. The different locations in Canada may also provide their unique taxation credits labeled as investment taxation credits. 

The Canada Revenue Agency (CRA) has stipulated the expenditures that qualify for SR & ED in its bulletin IT-151-R4. To apply for SR & ED, you are required to complete form T661. In case you engage consultants for your research and development project, they are eligible for credits of up to eighty percent of their invoice. To process your claim to determine whether you qualify for SR & ED, the CRA uses the Self-Assessment and Learning Tool (SALT). 

Purpose of availing your claim not later than eighteen months after the end of your financial period. It is advisable to attach your annual tax returns. If you complete the claim appropriately, expect the refund within sixty days. During this period, your request is subject to a financial and technical assessment. A review of your business measures against the threshold stipulated for SRED and whether the expenses are eligible. 

The financial and technical assessment serves the role of audit. During this process, be available to provide clarifications to convince the audit team of validity. Some of the audit queries relate to the techniques you have undertaken during research and development. Other query concerns could be about the expenditure incurred to support the process. It qualifies as contemporaneous documentation. 

The technical members of the audit team go to great length to analyze your application. It is a rigorous process. SE & RD is an attractive incentive and draws many controversies concentrated on interpreting the research and development part. The Canadian Government takes time to review to meet the legal threshold and leave no one behind. 

Unforeseen urgent financial needs arise in your business.  It will entail a record of previous successfully SR & ED applications; private and public financial institutions are willing to advance you the emergency funds as you await CRA’s payment. 

Overall the SE & RD tax incentive is a hanging fruit you can access. Arm yourself with the application form.  Qualifies include academic and pure business. The audit team undertakes the due diligence and grants you an opportunity to provide all the required documentation. They are thorough, and within sixty days, you will receive feedback. Be prepared for three scenarios: these are rejection, partial approval, or full approval. You have everything to gain in this process.  Go for it!