We often tell people that failed projects are embraced by the SR&ED program, and sometimes it can be a little hard to understand exactly why. I mean, isn’t the program meant to promote innovation, and to encourage technological development? If so, then why are projects that don’t result in a more innovative product or process applicable for the SR&ED program?
This goes back to the three criteria of the program: Technological Advancement, Technological Obstacles and Technical Content.
When looking at a failed project, you most likely faced a number of Technological Obstacles while working on it – these obstacles are anything that prevented you from getting to the final objective, so obviously in a failed project you faced a number of obstacles.
The technical content shows the systematic investigation that was done while trying to reach the final objective, which would be done for both failed and successful projects.
Lastly, your knowledge has been expanded in the instance of failed projects as well – in these instances, you now have the knowledge that there is no way that you have found to get to the final objective.
So yes, failed projects definitely qualify for the SR&ED program, as long as they too fulfill the three criteria of the program.
Canadian companies definitely have an advantage when it comes to research and development tax credits. Canada is rated among the Top G20 countries when it comes to Research and Development. The government encourages Canadian companies to do their research in Canada with tax credits and cash back incentives to remain manufacturing in Canada.
Foreign companies can benefit as well. The benefit to a foreign owned company can be the significant reduction or even elimination of their Canadian taxes owed, with the benefit of retaining the rights to the SR&ED program.
Foreign companies become eligible when they become a subsidiary of a foreign parent and can claim 20% tax credits on qualifying SR&ED activities. Another way to become eligible is to become a Canadian-controlled private corporation (CCPC), as long as an owner owns less than 50% of the company’s shares, so the majority of ownership is Canadian. Becoming a CCPC allows the company to claim 35% cash back on qualifying SR&ED activities.
For more information check out this link: http://investincanada.gc.ca/eng/publications/rd-tax-credit-fact-sheet.aspx
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 SR&ED claim.
519.623.2486
