Have you ever wondered why many firms that eligible for the SR&ED program are not maximizing their claims, year over year?
The Scientific Research and Experimental Development (SR&ED) program is the largest tax incentive program administered by the federal government for companies of all sizes and firms in virtually all industry sectors. The CRA pays out $3.6 billion every year to approximately 26,000 claimants across Canada. While it’s true that more companies are subject to scrutiny today than at any time in the past, they can still work on making their claims bigger and more technically sound.
Grab a notepad – here are some ways to maximize your claim that you will want to write down:
- When you write your technical report, it is just that, a technical report. It should not read like you are trying to sell your idea to the CRA. We have seen many instances where firms try to increase their claim size by writing it like a sales and marketing report. In almost all cases, the CRA either significantly reduces or denies the claim. Simply follow the requirements that the CRA has outlined.
- Take small projects that you feel are not worth your time and pool them together to make a bigger project. Often times, firms simply do not see the forest from the trees. In other words, they are not aware that you can take small and weak projects, and combine them to make the claim more technical and robust.
- Ask yourself some forensic-type probing questions, such as:
- When routine engineering of components were put together to create a technological breakthrough that resulted in technological uncertainty, what issues, obstacles and challenges were produced?
- How were the shop floor personnel involved with the prototype? Were there challenges when installing the widget on the production line? If so, what was done to resolve them? Do the shop floor personnel have production meetings and what results from these meetings?
- Did the president / CEO get involved with the developmental / design work? Does he/she have any input in the problems that arise as a result of introducing the prototype to the shop floor? Who gets involved in these types of decision making?
- Do the technical staff discuss project issues in the lunch room or at the water cooler? Have there been attempts to capture this information?
- Has the sales person been directly involved with product design / assisting with the prototype because he/she is well aware of the customers’ need and has a better idea of how to build the prototype? What is their role when it comes to design, development or prototype work?
- Are you using the traditional or proxy method to calculate your overhead? Sometimes, it may be worthwhile utilizing the traditional route to calculate overhead because you pay a huge energy bill or your insurance payment is massive. Check with your accountant for details of the overhead bills. We recommend to most of our clients to utilize the proxy method because 9 out of 10 times, the proxy method would be larger than the traditional method and less subject to scrutiny by the CRA.
- Did any projects I’ve worked on fail? If so, do I have them captured?
- At the end of every week, say Friday, ask your technical staff to take 15 minutes and write down the projects they were working on and the technological challenges they faced. Also write down the hours they spent working on the project. If they have photographs or reports, then record supporting documentation as well. This can all be written in a log book, which can be purchased at the dollar store and is well worth the investment if it increases the size of your claim.
- Did you capture all the materials consumed and transformed? Ask your purchasing department for all the invoices for a certain period and reconcile the invoices with the SR&ED work. This can be time consuming but not if you’re taking 10 to 15 minutes per week to reconcile.
- If you’re constantly utilizing a subcontractor for the development, design or to assist you in building jigs and fixtures, consider bringing them on as an employee, especially those sub-contractors that you’re paying in excess of $100,000. The difference can be more than $30,000 in ITC if you put the sub-contractor on payroll and pay them, as an example, $100,000 per year.
At BeneFACT, we inspect every claim with a fine-tooth comb. We utilize our forensic extraction technique to maximize every claim. We are Canada’s largest independent SR&ED with full time staff of over 60 employees. If you have any question(s), please do not hesitate to give us a call toll free at 1-855-TAX-BACK (829-2225).