“We aren’t changing the world so I didn’t think we would qualify for any R&D tax credits.” This comment was made to me by a new client about 10 years ago. At the same time, their corporate website stated that they were constantly developing new products and making improvements to existing products. The bottom line? They would have missed out on over 1 million dollars in tax credits from the Scientific Research & Experimental Development (SR&ED) program over the 10 years.
Although many companies are aware that the program exists, they dismiss it either because they assume their activities won’t qualify or they are concerned about the time commitment required to document their activities.
First of all, the time it takes to get close to a 60% return on money spent for R&D (research and development) makes sense even for small companies. For instance, an Ontario based Canadian controlled private corporation with taxable income below $500,000 could receive a combined federal/provincial refund of approximately $100,000 if the company spends approximately $160,000 on eligible SR&ED wages. Further, this is a refundable credit, which means that even if your business is in its startup phase and making no profit, you can get your SR&ED refund back in cash.
Many business owners don’t realize that qualifying expenditures can range from salaries and wages to materials and equipment, subcontractors and even overhead costs.
Secondly, you don’t need to have a research lab or be a high-tech business to qualify for this program. In technical terms, the CRA is looking for activities that have technological uncertainty where advancements are documented in terms of experimental and systematic development.
In other words, if you can answer “yes” to any of the following questions then you may already be doing something that qualifies for the SR&ED program:
- Are you developing a new product or making improvements to an existing product?
- Are you improving an existing manufacturing process?
- Are you developing software?
- Are you performing in-house research and development?
So if you are looking for ways to save significant money as you develop your products and processes, you owe it to yourself to follow-up on this program. The CRA’s website provides a wealth of information including small changes to the program for 2013 and, as always, feel free to contact us if you have any questions.
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