Author: Bikram Johal, President of Banhall Consulting ltd.
Canada’s SR&ED (Scientific Research and Development) program is one of the most successful tax incentive options available worldwide. The problem is that while many companies are eligible, not enough of them know about the program. Many companies have been introduced to SR&ED but do not think they are eligible. If you are a business that belongs in either of these two categories, you just might be leaving a large amount of money on the table.
So how do you know if your company qualifies? Well, for starters, companies that are registered as a corporation, partnership, or sole proprietorship can all apply for SR&ED claim.
There are three criteria a business needs to qualify for SR&ED:
1. Scientific or Technological Uncertainty
To qualify for SR&ED, a company must have worked on a project where they faced technological challenges that they could not use available industry knowledge to solve.
2. A Systematic Investigation or Experimentation
Think of this question like working on a high school project. Did you undertake a planned approach to try to solve a problem, and did it work or fail?
3. Technological Advancement
Ask yourself what knowledge you gained from all the experiments you did during your project? What did you learn from the whole project that you can use for future projects?
Determining SR&ED eligibility is complex. These are the criteria CRA will use to assess if a project qualifies:
1. “Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering?”
This question asks if your business went above and beyond your regular everyday procedures to improve a product or process. An example could be a tool manufacturer not having the technology needed to meet its customers’ growing demands. This results in the manufacturer using experiments and R&D to create this technology – which can be eligible to make a SR&ED claim.
2. “Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?”
This goes back to the “high school experiment.” Simply put, the hypothesis is the idea you will use to experiment to see if it will solve the technological challenge in your project – and you are not sure if the result will succeed or fail.
3. “Was the adopted procedure consistent with the total discipline of the scientific method, which includes formulating, testing, and modifying the hypothesis?”
This question may sound like a real head-scratcher, but let’s simplify this. What the CRA wants to know is if you thought out exactly what you wanted to achieve with your project, understand the challenges you need to overcome to achieve success, and explain the major steps in your experiments and whether they worked or not.
4. “Did the process result in a scientific or technological advancement?”
The CRA wants to know if your research and experiments led to creating a new way to improve a particular technology or process without using an existing solution to solve your challenges.
5. “Was a record of the hypothesis tested and results kept as the work progressed?
This is like a question during an exam that asks you to answer a math problem and show your work. The CRA wants to know that you have evidence that shows the experiments you attempted to solve your challenges (i.e., notebooks, emails, videos, etc.).
Previous entry in the SR&ED blog series: What is SR&ED?
Next entry in the SR&ED blog series: What are the Documentation Requirements for SR&ED?
About Banhall Consulting
Banhall Consulting LTD. was founded based on our passion for helping Canadian companies get the funding they need for their innovation to grow and thrive. Our dedication is helping companies with the SR&ED tax incentive program and how to navigate the complexities of the process and understand all necessary guidelines. Our team has decades of combined SR&ED experience and has worked on thousands of SR&ED claims. Our financial and technical experts have the versatility to assist companies in various industries in all areas of their SR&ED claim. Combining this experience and knowledge with our detailed-oriented methods has allowed us to achieve proven results with a 96% success rate on SR&ED claims.
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