Scientific Research & Experimental Development (SR&ED) is a Canadian funding program that provides funding and tax relief to businesses, corporations, and institutions that are strictly involved in research and development operations.
The program was founded in 1985 when the Canadian government saw the need to use its tax system to stimulate the development and growth of research organizations. If you’re a research and development institution based in Canada, you shouldn’t let the privilege escape you due to a lack of knowledge on how to benefit from the program. There are plenty of advantages to applying and qualifying for the SR&ED tax credit.
Let’s learn how the SR&ED program works for Canadian research and development businesses.
SR&ED Eligibility
Various businesses may be eligible for the SR&ED program:
Applied research
Applied research institutions aim to enhance scientific skills and knowledge while putting them into practice.
Basic research
Basic research businesses work on boosting scientific skills and knowledge without putting them into practice.
Experimental research
Businesses undertake experimental research to improve technological wellness with new opportunities, materials, products, devices, and skills.
Support research
As the name suggests, support research businesses are major in supporting or supplementing other research fields such as engineering, psychological research, data collection, analysis, and operations research.
SR&ED Application
Applying for SR&ED is quite easy. If you lie in the above category of research businesses, it’s even much easier to apply and qualify for SR&ED funding. Any research business can effortlessly maneuver across the application process and even better with an SR&ED agent or mentor.
Create an SR&ED claim method to guide you through the application process strategically. There are two main SR&ED claim methods. Firstly, the traditional method entails listing all your overhead costs and expenses. Alternatively, the proxy method uses percentages to track costs and overhead costs.
SR&ED Documentation
Collect all the documents required to apply for SR&ED, including:
- Current lease agreements or contracts.
- Business design.
- Business description.
- Ongoing projects.
- Existing samples.
- Purchase invoices.
- Business planning documents.
Present reports for all your SR&ED activities, including data collection reports, analysis, any challenges experienced during the data collection, experiments carried out, and designs used to conduct the experiments.
Present the financial expenses you’ve incurred when running SR&ED activities. The most common receipts required in this step include purchase invoices, activity records, technical drawings, financial meeting minutes, and audio, videos, or photographs supporting the expenditure reports.
Prepare SR&ED tax routines and presenting them to the government alongside your corporate tax return for the last 18 months and the claim application form.
After successfully applying for SR&ED, you are now required to patiently wait for the government to review your claim form and give you feedback. As you wait, ensure that you do not tamper with any existing evidence that might contradict the claim form.
SR&ED Criteria
Did you know that you can be a research and development business owner in Canada and still not qualify for SR&ED? The Canadian government uses the criteria below to test for eligibility of SR&ED before approving the funding:
Technological advancement
If the business’ projects major in improving scientific or technical skills and knowledge.
Technological uncertainty
If the business underwent any technical struggles and uncertainties while working on its past projects.
Technical content
If the business undertook any systematic and logical means of tackling the above challenges and uncertainties, then developed a hypothesis out of it.
Business documentation
If the business recorded its crucial activities and documents as evidence for expenditure within a certain period.
SR&ED Approval
To prevent unequal funding, the Canadian government came up with a quite complex process of approving SR&ED applications. The process begins with the following:
The CRA tests
This stage requires the applicant to undertake various tests from the Canada Revenue Agency concerning their application for SR&ED.
Scrutinization
The government begins the approval process, involving financial professionals and technicians to analyze the application. Sometimes, the analyzers may physically visit the business, supervise various activities, interview the staff, and undertake undercover investigations.
Preparation and planning
The CRA counter-checks the applicant’s details alongside their initial findings and highlights any wanting issues.
Review
The CRA and The Research and Technology Reviewer agents visit the institution physically to collect more details related to the application. The duo may also interview the staff, supervise various SR&ED activities, or undertake undercover investigations.
Report
The CRA prepares a detailed report of its findings, which is then used to choose the grace period for preparing and allocating the SR&ED funds. Sometimes, the CRA may disqualify the applicant for various reasons, a move which calls for a second application, amendments, and appeals before the court of law.
