Author: Bikram Johal, President of Banhall Consulting ltd.
Understanding which types of R&D projects are eligible for an SR&ED claim is your first order of business. The next step is to review the activities conducted in each project to see which ones qualify for the program.
The key factors to remember are all the categories that are eligible for companies to claim. These categories include:
- Experimental development and supporting work
- Applied and basic research
- Routine work that directly supports experimental work may qualify as well
Examples include: engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, operation, and psychological research.
Experimental Activities
But do not think of eligible SR&ED activity as just people wearing white coats running chemistry tests in a lab. Many companies have filed successful claims by performing experimental activity in commercial and industrial environments. Even if your project fails, if your R&D activity shows that you are trying to advance technology, this attempt becomes eligible for SR&ED.
A vast variety of activities and projects have been proven to be eligible for SR&ED refunds. Some of these activities include:
- Improving an existing product or technology
- Creating new or improving on automation
- Improving the efficiency of an existing manufacturing process
- Improving an existing product, such underperforming software application
- Creating a new process for unique products like sugar-free brownies or uniquely flavored beer
- Using new material for existing tooling/parts
Problem Solving Projects
Another way to understand if your projects are SR&ED eligible is if there is no technology available in your industry to solve the challenges you faced with your project. As a result, you may build a prototype that you were testing before production which can become an innovative product with a patent. If you worked on a project where you developed a new process or technique through a planned approach, you may have the opportunity to claim for SR&ED.
But to avoid any issues with the CRA, it is also important to know what is not eligible to claim. For example, categories such as routine testing of products and materials, market research, sales promotions, commercial production, and routine data collection cannot be claimed for this program.
You can claim eligible expenses such as employee wages, subcontractors working on the project, overhead, and materials, if they were part of the planning, research, and experimental aspects of the project. This is what makes the SR&ED program such a generous tax incentive for R&D activity.
Previous entry in the SR&ED blog series: What are the Documentation Requirements for SR&ED?
Next entry in the SR&ED blog series: How much can I get back from SR&ED and when can I get it?
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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