It is true that individuals and corporations in Canada can apply for lucrative tax credits for completing scientific research and/or experimental development. While there is a lot to gain from these credits and it is also essential to ensure the claim is done correctly. Choosing the right organization within Canada to assist with your scientific research and experimental development claim is vital for success. There are also many misconceptions about the program and this article is designed to provide you with a greater understanding of these issues:
We do not have dedicated R&D facilities or staff
Often companies assume that because they lack dedicated staff or facilities to conduct research and development (R&D) in Canada that they do not qualify for scientific research and experimental development (SR&ED) tax credits in Canada; however, this is not always the case. Your business could be conducting qualifying R&D activities in Canada by experimenting with different product designs and production techniques even if such experimentation uses the same standard facilities the company has and a portion of the time of the employees. That percentage of employee time dedicated to the R&D within Canada could be claimed for SR&ED tax credits on a pro rata basis.
We do not have any taxable income hence it is pointless to claim SR&ED tax credits
Canadian Controlled Private Corporations (CCPC’s) with net income under $500,000 are eligible for refundable tax credits. i.e. the tax credit will be paid out to the company by the CRA even if they have no taxable income against which to use it. Moreover, even non-eligible companies such as public companies or non-CCPC’s which cannot claim the refundable tax credit should claim SR&ED tax credits as these credits can be carried forward and claimed against any taxable income generated in the future.
We missed the deadline to file
It is important to note that the deadline for SR&ED tax credit application is 18 months from your fiscal year-end. Therefore you cannot file the SR&ED claim if you surpass this time limit and the tax credits are lost permanently. In certain instances you may be allowed to file the claim after the deadline – contact one of our partners in Toronto or Mississauga to discuss if your company can do so?
My company does engineering not research
Frequently in the process of designing a new products or making design improvements to an existing one, engineers will experiment with previously untested methods of production or design. This testing is typically what constitutes research and development. Whether the results are successful or not is irrelevant as even the failure in the engineer’s endeavors would constitute technological advancement in the sense of gaining knowledge about what works and what does not work. Don’t eliminate yourself from applying – talk to an expert to determine if you can apply for SR&ED tax credits in Canada.
We did not formulate a hypothesis at the beginning of our testing, hence we cannot be considered to follow the scientific method
A hypothesis consists of a statement about an expected result for your testing/experimenting which may or may not turn out to be true. Even if you did not explicitly make a statement of hypotheses before conducting your research or experimentation, mostly the experimentation is performed based on an implied hypothesis which can be verbalized and formally formulated even after the experimentation is done. It is important you discuss this with a SR&ED expert and specialists before eliminating yourself from eligibility. Our SR&ED experts have the knowledge to understand if your claim is strong and can guide you through planning for future SR&ED tax credit claims.
SRJ Chartered Accountants is a firm for business and tax accounting in the Toronto Area and throughout Canada. SRJ Chartered Accountants can provide advice on how to file your SR&ED claim whether you are located in Toronto or the rest of Canada. At SRJ, our objective is to identify all facets of qualified technical activities and corresponding expenditures, leading to a successful SR&ED claim completion. Whether you are a start-up corporation or experienced in filing SR&ED claims, our experienced and professional consultants will minimize the disruption from your daily business operations. We have a track-record of delivering quality, and we have a strong reputation with the CRA. Our clients range in various industries and are located throughout Ontario, Canada and also in the US and overseas. For more information please call us directly at 647-725-2537 or send an email to firstname.lastname@example.org.