Research and development is good business and vital to your company’s future success.
With the demands of daily business, the holiday deadlines and constant growing issues to be dealt with, you probably don’t have time to think about ‘R&D’ too often. But working with a living organism comes with unique challenges and opportunities in the form of avoiding pest and bacteria problems, improving plant vitality, identifying and developing cultivar mutations … the list of potential R&D projects goes on and on. Sometimes you may be forced to do R&D just to save your existing crop, while other times you choose to undertake R&D for the purpose of improving your future crops. Either way, a healthy, consistent level of R&D is good business and is vital to your company’s future success.
In addition to the business advantages it creates, R&D can also reap other rewards in the form of government grants and incentives. One of the most rewarding and accessible programs available for this type of work is the Scientific Research & Experimental Development Tax Credit Incentive program (SR&ED).
Since my previous article in June 2005 on this subject, CRA’s approach to reviewing and assessing claims has become more rigorous for new and repeat filers. That being the case, then the next question for you is, “how do I ensure that I can maximize and defend my (SR&ED) claims?” Here are a few tips:
1. Keep Documentation. This is probably the single most important factor in determining whether you will be claiming the minimum or maximum amount you are entitled to under the program. Good documentation will help you do better SR&ED work and will likely increase your claims as well as help significantly in the defence of your claims with CRA.
2. Plan Your Trial Groups. The developmental purposes of your work become clouded and unclear when a trial is being performed on all of your production and CRA is less likely to accept the work or the extent of the work when they do not see evidence of thoughtful trial groups and planning. You can increase your claims and your chances of success by planning your trial groups ahead of time, and documenting the developmental reasons for the trial size that you choose. Also, make sure you keep a control group to help analyze trial results.
3. Upfront Planning. The more evidence you have of upfront planning for your trials, the more likely CRA is to accept that your SR&ED was done for developmental purposes and not for commercial purposes. Also, there are more costs that can be claimed when your trials are pre-planned and segregated than if they are ad hoc and applied to your regular production. As always, documentation of your planning is also a must.
4. Using a Technical Consultant. Using an independent research consultant or partnering with a government research agency, such as the University of Guelph or the Vineland Research Station, will add credibility and structure to your projects. Also, the research consultant may be able to assist in preparing your technical reports or defending your claims with CRA.
5. Maximize Eligible Costs. Once you have an eligible project and have determined the eligible activities, your SR&ED tax credit will be based on the actual cost of those activities. Maximizing those costs whenever
practical will result in increased SR&ED claims. One example of this is to stop paying bonuses to owners at the end of the year and increase their regular weekly compensation instead. Since the owners’ bonuses are not eligible for SR&ED (except in special circumstances), this strategy could significantly increase your claim without impacting your financial success or taxes.
Whether you are new to claiming SR&ED tax credits or have been doing it for years, there are always ways you can improve your claim dollars and the strength of your claims. Your efforts will be rewarded both in the success of your business, and on your tax returns!
Please note that the details of the SR&ED Tax Credit Program have been simplified for the purposes of this article. The tax laws associated with this program are highly complex and you should consult your SR&ED tax expert before making a claim.
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