Archive for August, 2008

Rising oil prices, poor currency exchange, and a sagging US economy have contributed to a decline in the Canadian manufacturing industry.  More and more products have been outsourced abroad, which has further contributed to the sagging fortunes of manufacturing companies in Canada.  However, some companies have still been able to prosper in these tough economic times.

A local manufacturing and distribution company, Algreen Products, has developed a brand new rain barrel that has revitalized their Canadian plastics manufacturing business.  Algreen Products was in a process of downsizing the business when demand for their new rain barrel suddenly rejuvenated their manufacturing operation.  Demand for this new environmentally-friendly product has been staggering.  Plans have been made to increase manufacturing capacity due to the endless orders for the new rain barrel.

Algreen attributes the success of their rain barrel to two main factors:

1. Identifying and targeting a growing niche: the North American green shift, and
2. Taking advantage of the federal government\’s Scientific Research and Experimental Development program (i.e. SR&ED funding) to finance their new product development.

Algreen’s strategy was to take advantage of SR&ED funding to finance new product development.  With revenue shrinking, most companies aren’t able to invest in R&D.  However, R&D is the lifeline of any company.   Cutbacks in R&D cause product lines to stagnate, which in turn diminishes the future competitiveness of the company.  Companies that do not continuously invest in R&D tend not to survive.  And this is why during tough economic times, it is especially import to find alternative means to finance new product development.  Unfortunately, very few manufacturing companies are aware of the SR&ED program, and thus, are not able to take advantage of the extra cash flow that this program offers.

In the meantime, orders for the new rain barrel keep on coming in.  Trucks keep on rolling into the loading docks, and Algreen is hard pressed to fill them.  Algreen seems to have hit a market niche that has struck a chord with consumers.  The new rain barrel not only helps customers to conserve water and save money, but it also combines the timeless aesthetic elegance of ceramics with the enduring longevity of modern plastics.   According to company spokesperson, Walat Yasin, “City-issued rain barrels are ugly.  The concept behind this new product has been to develop a rain barrel that homeowners could proudly display, like a piece of furniture.”

Canada narrowly avoided a recession in the first half of this year as the economy (GDP, or Gross Domestic Product) edged up by a weaker-than-expected rate of 0.3 per cent in the second quarter, following a revised 0.8 per cent drop in the previous three-month period.  Most analysts had expected second-quarter growth of 0.6 per cent between April and June from with the second quarter in 2007.

A recession occurs when declines in GDP are reported in two consecutive fiscal quarters.  Technically, our economy was able to avoid a recession by the slimmest of margins.  However, our economy continues to be held back by a widespread contraction in the manufacturing industry, and significant declines in the energy sector.

When deciding whether to gather sr&ed information and make a sr&ed claim many companies often wonder what types of work qualifies for sr&ed tax credits. A sr&ed project is defined by the Canadian Revenue Agency as “a set of interrelated activities that collectively are necessary for the attempt to achieve the specific scientific and/or technological advance(s) defined for the project, are required to overcome scientific and/or technological uncertainty, and are pursued through a systematic investigation by means of experiment or analysis performed by qualified individuals. In order to better understand this statement we will examine its key points in further detail.

Work that sets about to achieve a specific scientific or technological advance or overcome a scientific or technological uncertainty can consist of a vast amount of tasks. In general if a company is attempting to create a new or improved product or process and the work required to do so is not standard practice it is likely that the work will qualify as sr&ed. Work to improve a product or process or create an entirely new product or process will generally contain setbacks or difficulties that must be addressed, these setbacks form the basis of the “uncertainties” that need to be overcome within a sr&ed project. By collecting information about the setbacks and difficulties that occur while trying to improve a company high quality sr&ed information will be created which can be utilized during the claim process.

The setbacks and difficulties present within a sr&ed project are often the cause of the project being completed in an iterative manner as a solution to a problem is devised, the solution tested, and the results gathered. If the solution is successful the process will be complete however if the solution requires further refinement the process must be repeated for another iteration. This iterative process will normally establish that the project has been completed in a systematic manner as the individuals working on the project will attempt to learn from each iteration how to best solve the problem.

The individuals participating in the sr&ed project as well as the collection of sr&ed information are required to be qualified in the area which they are involved in the project. The qualifications held by the individuals will be as diverse as the tasks required to perform the project. As an example a new product may be designed by an engineer but the prototype fabricated by a press operator, the engineer is qualified to design the product but not qualified to operate the press and visa versa. As we can see the work done by both individuals contributes to the completion of the product and as such sr&ed information related to the labour of both individuals should be recorded.

By better understanding what work qualifies as sr&ed and collecting the appropriate sr&ed information a stronger sr&ed claim can be made and greater rewards gained through the filing process.