FAQ

Frequently Asked Questions

• What is SR&ED?

• What are Investment Tax Credits?

• Who can claim?

• What  if there's no taxable income?

• What are the chances for approval?

•  Do I risk a total business audit?

• How do I start to make a claim?

• What information do I need to provide?

• How long does it take?

• What else do I need to know?

What is SR&ED?

Scientific Research and Experimental Development is defined in Section 248(1) of the Income Tax Act of Canada.  The definition has evolved from international concepts as developed by OECD in the Frascati Manual of 1963 and the Oslo Manual issued 1992.  To these opinions were added Canadian legislative changes and 40 years of tax court decisions.  This has generated a plethora of Federal government guides, application papers, information bulletins, forms and Rulings Directorate decisions.  This part of the Income Tax Act now requires specialist knowledge to avoid audit pitfalls or missed opportunities. When Provinces also adopted tax credit incentives, a new layer of complexity was added.  SR&ED is now what governments want it to be - a hybrid between industrial R&D and innovation conducted in Canada.  The allowable costs are defined by the Income Tax Act with financial constraints to avoid abuse of the tax system. See also:  Origins

What are Investment Tax Credits?                

The government of Canada uses the income tax system for social engineering of the economy.  Investment tax credits (ITC) are earned by companies or individuals to offset Federal or Provincial taxes payable.  For certain taxpayers, and certain costs,  the ITC are refundable if no taxes are owing.  In recent years, especially since NAFTA, the government has moved away from selective grants to the more universally accessible ITC.  SR&ED tax credits are one of the most important sources for Canadian R&D funding and a key tool to generate new products and processes for tomorrow's economy.    up

Who can claim?

All Canadian taxpayers who conduct SR&ED and file a T1 or T2 tax return can claim. Most claims are corporate because individuals cannot pay themselves thus have little R&D costs.  Foreign and public companies get only tax credits which can be used for 3 years back and 10 years forward.  Canadian controlled private companies (CCPC) can get a refund cheque for ITC on the current expenses, and part of the capital equipment.  Not-for-profit institutes and government research agencies cannot claim but their corporate clients can.

What if there's no taxable income?

If you are a Canadian Controlled Private Corporation, the tax credits are refundable - you get a cheque from the government. This is a great way for start-up companies to finance new product development.  Non-profit research organizations cannot claim tax credits but their taxable Canadian clients can.     up

What are my chances of  approval?

Very high - if we prepared the documentation and agree it is SR&ED.  We don't submit a claim to the Canadian government that deserves to be rejected.  There may be debatable issues, but most claims are accepted after an audit.  A few cases have to be argued to the second level of program management to get entitlement.  Rarely are formal appeals or tax court required. 

Do I risk a total business audit?

Historically, government auditors enhanced their careers by the volume of dollars recovered from taxpayers.  This program is an incentive to do industrial R&D. CCRA has stated in their publications that  they will not expand an SR&ED audit into a full business audit unless they have evidence of fraud. If you have given us proper disclosure and accurate records, this does not happen.  up

How do I start to make a claim?

Contact us for a preliminary assessment to identify SR&ED.  If there is claimable work, we will make a contract proposal.  You can hire us to prepare the full claim or train and assist your staff.

What information do I need to provide?

• Contact info: address, phone, e-mail
• Corporate info: (ownership, history, affiliates)
• R&D Staff info (qualifications, salaries, time)
• Business info: R&D facilities, contractors, sites
• Project info: history, tech issues & goals, progress
• Chronology of events.

From this information we assemble your claim.  We evaluate your site evidence and interview your staff. In order to file your claim with the tax departments, we also require access to the current corporate tax T2 being filed and prior tax T2 if we are filing amendments.  Alternatively we work with your external accountant to prepare the Federal and Provincial submissions.  up

How long does it take?

If the information is available, a claim can be assembled in days.  If it must be gathered piecemeal by staff interviews and lab records, it may take months.  The claim must be filed within 18 months of the financial year-end.  Once filed, the government audit cycle ranges from 60 days to issue a cheque or tax credit assessment without a site audit or up to a year for a detailed audit that encounters issues. Public or foreign corporations not entitled to refunds are issued assessments subject to normal business audit cycles that may be delayed for up to 6 years.  Successful claims without adjustments reduce the audit cycle for future claims.  The best way to expedite is to submit a complete, well documented, credible claim each year with your corporate T2.

What else do I need to know?

Governments change the rules for SR&ED continually  in response to changes in tax law or policy. That's why expert help is necessary.  Visit our News page and read SRED.INFO News. To evaluate your specific corporate situation, request a free consultation.  up