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:
- 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:
- General or non-technical project management;
- Routine technical work not related to, or in support of, the resolution of the technological uncertainties;
- Routine elements of fabrication and assembly not related resolution of the technological uncertainties; and,
- Commercial production amounts and routine testing and quality efforts, that far exceed the levels required to test and evaluate the technological aspects under investigation.
- 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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