Scientific Research and Experimental Development (SR&ED) and the Industrial Research Assistance Program (IRAP) are two of the largest government incentive programs in Canada. The chart below details some of the major differences between the 2 programs.
||Scientific Research and Experimental Development (SR&ED)
||Industrial Research Assistance Program (IRAP)
||SR&ED is administered by the Canada Revenue Agency (CRA)
||IRAP is administered by the National Research Council (NRC)
|Type of program
||SR&ED is a tax credit for eligible R&D expenditures incurred as per the federal Income Tax Act
||IRAP is a government grant program
||Financial and technical reviews administered by the CRA, after application
||Upon approval, the NRC requires regular reporting of progress when compared to deliverables
||Up to 35% as a refundable tax credit (federal), plus provincial tax credits. 20% non-refundable tax credit for foreign-owned or public corporations
||IRAP non-repayable grants vary from $15,000 to $1 million
||Submit technical narratives and T661 [Scientific Research and Experimental Development (SR&ED) Expenditures Claim] with tax returns or amended tax returns
||Contact Industrial Technology Advisor for consultation. An IRAP application requires a financial business plan and technology plan
Earlier in June, NorthBridge paired up with Excellence in Manufacturing Consortium (EMC) Canada to host a series manufacturing seminar in Atlantic Canada. The information sessions focused on how to best prepare for a SR&ED review and create a “culture of SR&ED” within your company to maximize success with the program. EMC also posted an account of their experience of the successful events.
The sessions proved illustrative of the diverse experiences companies encounter throughout the SR&ED process, and touched on recurring challenges the program presents for many companies, from understanding the program guidelines and changes to the program, to educating staff of the program’s value.
NorthBridge is involved with the SR&ED process from beginning to end – including providing in-depth support and background for the SR&ED review process and committing physical presence for a review. Typically, following the submission of a SR&ED claim, the applicant company will receive one of three communication forms: a Notice of Assessment (if Accepted as Filed), a request from the CRA for additional information, or a request for an on-site review. The on-site review may be either Technical or Financial, or both. The primary objective of a CRA review, conducted in person by an appointed Research and Technology Advisor (RTA), is to assess the projects’ applicability, to understand the technology and substantiation of work, to assess the cost breakdown and/or to observe proof of costs.
A well-supported SR&ED claim can be maintained through efforts including:
- Tracking project activity on a weekly basis at minimum
- Keeping notes of trials (purpose, metrics and results)
- Maintaining print and digital copies of email
- Requesting statements of work from sub-contractors
- Taking pictures and videos
- Maintaining version control
- Dating all documents.
The review process ensures the validity and stability of the SR&ED program. While the CRA has been increasing the scope and robustness of the SR&ED review process, a well-prepared applicant with strong and organized documentation and a sound understanding of the SR&ED program will ensure a quick and easy proceeding. NorthBridge experts are always available to answer your SR&ED review and general queries.
Along with the other changes that the CRA has been implementing over the past couple years, the Claim Review Manual has been updated. This is the manual that tells the CRA reviewers what processes they need to follow when reviewing an SR&ED claim. This review manual is meant to make the review process more consistent from review to review, and from reviewer to reviewer. It sets out clear guidelines as to what is to happen in a review, and what kind of timeline the reviewer should be following when working on a claim. The manual is also supposed to increase the co-ordination between the technical and financial reviewers, and to increase the communication quality between the reviewer and you (the claimant).
The CRA’s website has laid out the steps to a review, as listed in the CRA Review Manual. A brief overview follows:
- Preparing and planning:
- Reviewing your claim
- Identifying issues with your claim (ie – areas they are unsure can be considered SR&ED)
- Making first contact with you
- Conducting a site visit:
- Preparing for the review (the reviewer will contact you by phone or letter to discuss when the review will happen)
- Preliminary review work (interviewing any possible staff involved with the SR&ED work, explaining the SR&ED program, etc)
- On-site review (tour of the facilities, interviewing staff involved in the SR&ED work, reviewing supporting documentation)
- Request for more information to be sent to the CRA reviewer
- Communication of preliminary decisions (if possible, the reviewer will let you know what kind of results to expect from your claim submission)
- Finalizing results:
- SR&ED review report (prepared by the CRA for you, to allow you to review it and provide any new information if you disagree with their assessment)
- Finalization of technical and financial reports (these reports will be sent to you by mail, be delivered in a meeting, or discussed over the phone)
- Dispute resolution (if you disagree with the CRA’s final report)
- Appeals process
After you’ve filed your SR&ED claim, there is a bit of a waiting period before you will hear back from the CRA. When that waiting period is done, one of two things may happen – you may hear that your claim has been Accepted as Filed, or the CRA may ask to review your claim with you. There are two different types reviews that can happen: the technical review and the financial review. You may be asked to have one, the other, or both types.
The technical review will look at the SR&ED work that you’ve done, in order to confirm that your projects are eligible. The reviewer will be looking for obstacles, will be looking to see that some sort of advancement in your knowledge has happened, and will be looking to see that you have the documentation to support the obstacles and advancement.
The financial review will look at all of your financial information involved with your SR&ED claim, in order to confirm that you have claimed the correct costs for each project. Again, you will need the proper documentation to support the financial information.
Some consultants and accounting firms shy away from CRA reviews. Some do not guarantee that they will be present with you when your review happens. Northbridge embraces the CRA review for a couple of reasons:
Firstly, especially if this is the first time that you are claiming, the CRA reviewers want to meet with you to make sure you understand the SR&ED program.
Secondly, if a review isn’t requested it is usually because you have claimed less than you could be eligible for.
One last thing to make note of in regards to CRA reviews – having a CRA review does NOT meant that you will get a tax audit. The SR&ED division of the CRA works separately from the tax division, and no information is passed on to the tax division from your SRED claim.
In 2008, quite a number of changes took place regarding the SR&ED program. For one, the CRA hired a slew of auditors for SR&ED, increasing the likelihood that a technical and financial reviews will take place, no matter how solid the claim. For some businesses, especially first time claimants, this has proved to be daunting in attaining a significant return.
It is now more important than ever to have strong, solid, properly documented projects and to know one’s way through the maze that is the new T661 forms. When it comes to describing project activities, you are now limited to 1400 words as opposed to a full twelve page narrative. If the necessary requirements of technological uncertainty and advancement are not adequately supported, claims run the risk of being rejected, or at least of having certain activities disqualified, thus reducing the size of any return received.
Fortunately for rejected claims, if the 18 month period after fiscal year end claimed for has not expired, an objection can be submitted to the CRA within 90 days of receiving the notice of assessment. if you feel that your project does in fact meet SR&ED requirements, it may very well be worthwhile to pursue an appeal. The CRA outlines the appeals process on their website at:
All in all, the hassle of submitting objections and pursuing an appeal is time consuming. This can be avoided altogether with the use of a consulting expert. An experienced SR&ED consultant assess projects and handle the filing for you can be extremely valuable. In addition, should claims be called to review, Northbridge Consultants readily will accompany you to the CRA review location. While it is necessary that you attend and represent your projects, Northbridge provides assistance in the defense of any activities or documentation that may be disputed by the auditor.