There seems to be an endless amount of paperwork required to keep a successful business operating efficiently and effectively these days. With all of the different regulatory, industry association requirements and internal documents to deal with, adding another heap of tediousness might seem counterproductive. Northbridge clients know that Research & Development document control is one of the most critical in daily operations because it directly impacts the company’s revenue stream; if you don’t keep proper R&D records the CRA has the right to refuse your annual claim outright. Here are some quick and easy ways to ensure at least a bare minimum is being adequately logged:
- Keep any emails discussing projects involving installation of new machinery, new products, or improvements to existing processes and products. A great way to effectively database these emails, company-wide, is to set up an email were employees can forward relevant emails which pertain to projects on the go (i.e.: research@company.com). This also ensures that if someone deletes their Inbox folder accidentally that the backups are still available.
- Meeting notes and other logs of discussions are very useful in tracking project development. The compiling of typical and project info talked about during meetings shows that there is an ongoing environment in the organization which promotes and encourages innovation and puts specific timelines on issues and projects which are traceable.
- In certain manufacturing environments it is hard to sit down at a computer and allocate time to projects and fill in spreadsheets (especially if there’s no computer in that department!). In these cases a simple log book or printout of a spreadsheet will suffice, it’s getting the technically ‘un-savvy’ personnel to fill it out on a daily or weekly basis which could be a challenge.
- There are many companies which employ external quality assurance programs such as ISO and GMP measures, these systems generally have templates which can assist in the detailed tracking of R&D projects. The resident QA/QC manager should have access to this information through an available add-on for additional purchase.
While this is the bare-bones of what the CRA would require there are many other easy and effective ways to implement project tracking. There are key elements which the CRA looks for and if they are missing it could mean a rejected submission. For first time filers this rule is somewhat relaxed but going forward a company is required to keep proper documentation to ensure effective internal management of the SR&ED program. Northbridge gives (free of charge) each and every client the tools and training they need, on a department basis, to successfully track projects which means no hassle the next time around!
We have had some people contact us with a question about whether non profit organizations (NPOs) can claim for the SR&ED program. The short answer is, unfortunately no. However – corporate clients or partners can.
Why is this?
The CRA states that only business and corporate tax-payers (including Canadian-controlled private corporations, public and foreign-owned companies) can claim for the SR&ED program. While NPOs do file income tax returns, most are tax-exempt. As the SR&ED is an ITC (tax credit – sometimes refundable, depending on the business), this means that there would be no taxes to apply the ITC to.
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.
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