The SR&ED tax claim process alone can be confusing, but add in the stipulations and changing rules regarding contractors and you have yourself a bit of a puzzle. Arm’s-length contractors can be included in your SR&ED claim, but you have to understand when and how. As always, it’s best to hire a professional SR&ED consultant to make sure every “t” is crossed and “i” dotted, but hopefully this post will give you a better overall understanding of the contractor’s role in the SR&ED claim process.
To claim a contract payment for SR&ED, the contractor must be arm’s-length, meaning they must not be connected to the company claiming, and the contractor can’t be an “employee”. The contractor can be anyone hired to carry out SR&ED eligible work, as long as the work is done in Canada. This could be:
It’s important to remember that if any other assistance has been received from government research facilities that it may have a direct impact on the benefit amount in the SR&ED claim.
This is the part where things get a bit dicey. When working with a contractor, it’s important to make it as obvious as possible that YOU are the one claiming SR&ED. To put it simply, the company with the right to the Intellectual Property (IP) is the rightful SR&ED claimant. If the contractor obtains the IP rights, then THEY claim SR&ED. There have been instances where a company hires a contractor to do the SR&ED work, and the contractor ended up with the rights to the SR&ED benefits. It’s important to avoid this kind of situation.
Here are some simple ways to make sure it is clear that your company has the IP and is the rightful SR&ED claimant:
One of the big changes occurring next year (2014) is that the contractor refund rate will drop from 100% to just 80%. For this reason, it may be a good idea to investigate the possibility of hiring a contractor as an “employee” for the short term, rather than as a contractor. You may find your benefits increase.
*The information above is meant for informational purposes only, and not to be used as financial or legal advice.