Is it Getting Tougher for Firms to Claim SR&ED Funding?

SR&ED Funding

The Scientific Research & Experimental Development (SR&ED) program is the largest tax incentive federal program, administered by the Canada Revenue Agency (CRA). It encourages Canadian business of all sizes and in virtually all sectors to conduct Research and Development (R&D) in Canada. Each year, the SR&ED program provides over $3.6 billion in Investment Tax Credits (ITCs) to over 23,000 claimants across Canada. Of these, approximately 75% are small businesses. So despite these well-established facts, why is it getting tougher for firms to claim SR&ED funding?

In the past, especially before the Jenkins report was published in 2012, it was easier to apply for SR&ED funding. The eligibility rules were not as stringent and the definition of Technological Advancement was loosely used. As a result, there were many consultants taking advantage to assist their clients with this program. The CRA, based on the loosely defined eligibility criteria, was generous in assessing the tens of thousands of claims that would come to their desks each year. As a result, more and more firms began to take advantage of this program and even those that were on the border line of SR&ED eligibility. With the recent changes to the program, additional hiring of CRA employees to oversee the SR&ED program, and the tightening of the eligibility criteria, it has become harder for firms to claim for SR&ED funding. Whereas many firms in the past had their SR&ED claims accepted as filed, these same firms are under major scrutiny. And this is the result of redefining the eligibility criteria by the CRA to overhaul this existing program and to remove those claimants that are outside the jurisdiction of the SR&ED program.

The increase in reviews will continue to dominate the Canadian SR&ED landscape. Nonetheless, at BeneFACT we are experiencing successful reviews and the reasons for this are:

  • We are ISO 9001:2008 registered, which means we are process driven and have systems in place to counteract the threat of any reviews.
  • We work with our clients long before the presence of a review to assist them with gathering of important documentation, lab reports, prototypes, photographs, etc to ensure that all SR&ED projects are well supported.
  • We have a dedicated reviews team, who are experts in the field. We provide a mock review with the client, before the actual review, to ensure that our client is fully prepared to handle all questions posed by the CRA.
  • We meet with CRA SR&ED directors from different markets to go over policies and procedures.

If you feel overwhelmed with your current claim or need a second opinion to assess your claim, please contact one of BeneFACT’s highly trained SR&ED experts to assist you. Speak with a BeneFACT SR&ED expert today to learn more about the SR&ED program to see if your company’s activities qualify for this lucrative tax credit.  Get the information you need to start maximizing your claim today! Toll Free: 1-855-TAX-BACK (829-2225)

The Early Bird Gets the SR&ED

Early Bird get the SR&ED

Starting the SR&ED claim preparation process early has many benefits. The most obvious is that earlier preparation leads to earlier submission and getting the tax refund sooner but there are other benefits as well. Even so, every year countless SR&ED claimants leave their claim preparation until the last minute.

The Consequences of Being Late                                                                                     CRA has published service standards that they try to meet based on the category that the claimant company falls under and when the SR&ED claim is submitted. CRA has committed to meeting these service standards at least 90% of the time. Ideally, the SR&ED claim should be filed with the initial tax return submission by the filing due date for the tax return (6 months after the fiscal year end) for the fastest processing. For Canadian Controlled Private Corporations (CCPC) with refundable claims (see our blog post here) a lower service standard applies when the SR&ED claim is filed as an amendment to the tax return. The difference in processing time is significant.

CRA’s SR&ED Service Standards:

• Refundable claims submitted with original tax return submission – 120 calendar days from receipt of a complete claim
• Refundable claims submitted as an amendment to the tax return (“claimant-requested adjustments”) – 240 calendar days from receipt of a complete claim
• Non-refundable claims whether timely filed or amendments – 365 calendar days from receipt of a complete claim

As a worst case scenario, there is also a deadline for filing a complete SR&ED claim after which no claim will be accepted by CRA. This is 12 months after the normal tax return due date, or 18 months after the fiscal year end.

The Benefits of Starting Early                                                                               Obviously starting early creates a higher probability of submitting a claim with the initial tax return for the year. This leads to a faster service standard with CRA for refundable claims. On top of this, there are a number of other benefits:

• If an incomplete claim is inadvertently submitted, CRA will inform the claimant regarding the missing information. This generally happens within 30 to 60 days following receipt of the claim by CRA. Filing well ahead of the 18 month deadline gives a claimant an opportunity to act on this information before it’s too late. This is especially beneficial to claimants that prepare their own submissions.
• The earlier the better! At BeneFACT, we frequently submit complete claim packages to our clients within two to three months after their fiscal year end. This allows them to include the impact of the SR&ED in their final tax balance payment and potentially reduce next year’s tax instalment payments.
• Claims prepared closer to the time when the work happened are usually stronger and better supported. Documentation is easier to identify and find, and the technical personnel generally have an easier time articulating the technological aspects of their projects. Stronger and better supported SR&ED claims lead to easier reviews with CRA and more SR&ED tax credits in claimants’ hands sooner.

Although the benefits of preparing your SR&ED claim early are significant, the impact of being late could be catastrophic. The moral of the story? Be an early bird!

BeneFACT Consulting Group has a team of financial and technical experts dedicated exclusively to helping Canadian companies maximize their R&D refunds. Speak with a BeneFACT SR&ED expert today to learn more about the SR&ED program to see if your company’s activities qualify for this lucrative tax credit.  Get the information you need to start maximizing your claim today! Toll Free: 1-855-TAX-BACK (829-2225)

Are the CRA rules changing for manufacturing?

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We thought we’d take a little time today to discuss two of the most common issues and challenges currently facing SR&ED claimants in the General Manufacturing space.

“It really seems like Canada Revenue Agency (“CRA”) is tightening up the rules on what they will consider to be SR&ED in the manufacturing/shop floor/Experimental Development space”

Actually, the rules haven’t changed, but CRA is being very consistent with respect to their expectations on a few key points:

  1. Commercial vs. SR&ED project: There is a consistent focus on ensuring that the claimant understands the difference between the overall commercial project, and the associated SR&ED project. The commercial project is what you are trying to design, or build, or take to market. The drivers for that commercial project could be anything from cost, to performance, to emerging market opportunities or environmental concerns. The associated SR&ED project, if there is one, is about the technological advancements and uncertainties that must be addressed in order to achieve your technological objectives, in order to achieve you commercial objectives. CRA is interested in ensuring that commercial aspects of the project, that are not related to the technological advancement/uncertainty work, are not included in the SR&ED claim. Examples of commercial aspects of a project that are commonly, and mistakenly, included in the SR&ED claim, include:
    1. General or non-technical project management;
    2. Routine technical work not related to, or in support of, the resolution of the technological uncertainties;
    3. Routine elements of fabrication and assembly not related resolution of the technological uncertainties; and,
    4.  Commercial production amounts and routine testing and quality efforts, that far exceed the levels required to test and evaluate the technological aspects under investigation.
  2. There is also a consistent focus by CRA to ensure that initial benchmarking, available research review, and due diligence work that is often undertaken at the start of many commercial projects, is not being included in the SR&ED projects being claimed. A SR&ED project begins when the technological uncertainties faced become clear. Often, these technological uncertainties are not known until the initial routine due diligence phase demonstrates that the claimant’s, and the industry’s, current knowledge and capabilities are insufficient to meet the technological objectives of the project – there is a technological “knowledge gap”. CRA wants to understand the due diligence phase as part of the process of understanding the technological knowledge gap being presented, and wants to ensure that this due diligence work was not included in the SR&ED project itself.

Speak with a BeneFACT SR&ED expert today to learn more about the SR&ED program to see if your company’s activities qualify for this lucrative tax credit.  Get the information you need to start maximizing your claim today! Toll Free: 1-855-TAX-BACK (829-2225)

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