The Jenkins report focused solely on small and medium enterprises (SMEs) and considering the vital role the SMEs play in the Canadian economy, I sincerely hope that the conservative government does its homework before deciding what changes to make (and when) to the SR&ED program. The SME market (businesses with less than 500 employees) represents the vast majority of firms in Canada, collectively employing almost 50% of the workers in the private sector (or 40% if the public sector is included) and contributes significantly to GDP growth and job creation. Aside from the benefits of productivity, it is growth that has more significant effects on the economy. Studies have shown that a large portion of job creation comes from a small subset of businesses, which experience a long period of sustained exponential growth. The irony is that the vast majority of these firms have started out as SMEs.

The word, “innovation” shows up in almost every page of the Jenkins report. When you look up the definition of “innovation” it refers to the “creation of better or more effective products, processes, technologies, or ideas”. The unfortunate reality is that the government and CRA seem to be focusing on “invention” rather than “innovation” – they’re not the same. Invention is the creation or discovery of something new to the world, whereas Innovation is about creating value through enhanced products, new processes or reducing costs of existing products or services.

In my opinion, the SR&ED program should mainly be about growth (productivity and innovation) – not the number of patents or scientists in a lab (i.e., inventions). That being said, I don’t want to discount the importance of science and research to our economic success but how many top companies rely solely on inventions to achieve global leadership? Canadian firms have achieved success through innovation, not invention.

It is interesting to note that Canada has had one of the most stable economies since the global recession, yet it continues to fall behind other countries when it comes to innovation. It is somewhat puzzling as to why Canada has slipped out of the World Economic Forum’s ranking of the 10 most competitive national economies. It is easy to blame the inefficiencies of the SR&ED program (I think there are many), however, I can think of at least one game changer (in addition to the China factor) that probably played a bigger role in Canada’s declining global competitiveness – the rise of the Canadian dollar. Ten years ago, Canada’s dollar hovered in the 60-cent range that provided a cost advantage (or incentive) to invest in Canada and trigger further productivity. With the Canadian dollar trading around par to the US dollar, that advantage is far less prevalent today. As such, Canadian businesses must continually innovate and increase their productivity to remain globally competitive. If every business in Canada did something incrementally better than they did before, whether it was expanding into a new market or changing a process, it would be those types of innovations that would increase the standard of living and reinforce growth in the Canadian economy.

There was a recent Angus Reid Public Opinion survey released by Intuit Inc. that stated, 97% of Canadian small business owners said innovation was less about disrupting the status quo and more about making changes to existing products and services, upgrading technology, or improving customer relations and internal processes. The SR&ED program is a means to incentivize companies (large and small) to take risks so any cuts to the program or obstacles to receive funds will be a sure way for Canadian entrepreneurs to avoid such experimentation.

- James Ro, Vice President of Northbridge Consulting Services

While the CRA does endeavour to assign a reviewer to your claim that already has knowledge of your field, this doesn’t always happen. In cases such as these, the CRA reviewer may not always fully understand the technology that you are using and why your activities are eligible for the SR&ED program. If you have an experience where you feel a mistake has been made about your claim, you can always either submit an amendment or an appeal.

You are able to submit an amendment to your claim to further explore the SR&ED eligibility of your projects within 18 months of your fiscal year end.

If you happen to believe that the reviewer did not fairly implement the SR&ED guidelines during your review, you can file an appeal. The appeal must be submitted within 90 days of the date of the Notice of Assessment that you receive.

The Scientific Research and Experimental Development program was developed to help any companies in Canada that do any kind of research and development. While this does include work that is done in a science lab, it can also include many other areas of work.

This program helps reward companies who are developing new products, improving existing products, and developing or improving processes. This could be anything from pharmaceuticals to plastic manufactured products to metal fabrication to food products – bottom line is that if you are developing or improving something and run into technical obstacles, you probably qualify for the program.

If you are wondering whether you qualify, we can help! Contact us to set up a free, no-obligation meeting where we can help you determine if you should apply for the SR&ED program!

I can understand why they would be worried about this. A tax audit can take up a lot of your time, is a lot of work, and can be a headache to get through. One would want to avoid a tax audit if one could.

So, it’s a relief to learn that an SR&ED review, in fact, will not trigger a tax audit. Because the SR&ED division of the CRA operates separately from other divisions, what happens in regards to your SR&ED claim stays within the SR&ED division of the CRA, and the results of your SR&ED claim does not determine whether the CRA will call a tax audit on your company.

Even when you are developing a brand-new project, SR&ED eligible activities don’t happen immediately. A good rule of thumb to remember is that SR&ED activities only begin once you face your first obstacle, which could be on the first day of development, or could be two months down the line.

Next time you start looking for SR&ED projects that you are involved in, remember to ask yourself where you first ran into technological problems with your business project.