Q. I want to apply for SR&ED but my project is not all R&D. Am I still eligible?
A. It's OK. You can claim a part of the project. It does not have to consist of 100% major breakthrough in science and technology to be SR&ED claimable. If, for example, part of your project consisted of developing a new algorithm or optimizing an existing industrial process, and the rest was routine development, you can claim the innovation part only.
Q. I would like to apply for SR&ED for the past fiscal year. I have a project that I think is eligible. What do I do?
A. First of all, please note that in order to have any SR&ED refunds you need a payroll (indicated on the T4 forms), or at least some contractor fees. All refunds are calculated based on the amount of payroll you had in the fiscal year, directly related to the project you claim SR&ED for. (You can claim indirect expenses, but only as a limited percentage of the aforementioned payroll amount).
Another important thing you must realize is that SR&ED is a refund program. This means that the amount you get is based on your expenditures for the past fiscal year. If you need to get some funding before you start working on the project, there are some other government incentive programs. You can find a list of them here: http://www.sred4you.com/2009/02/government-incentives-for-businesses_13.html.
Q. OK, we'd like to contract your company as SR&ED providers. What kind of input is required from us?
A. I will have to talk to you or one of your employees (the most technical one) once or twice for 1.5 - 2 hours. I will also need supporting documentation: diagrams, notes, possibly white papers and design documents. E-mails you or your employees wrote in the course of the development process, describing it, might be very helpful - something like "I tried this approach and it did not work, then I tried that approach and it worked, increasing the throughput by 30%". Any other documents that may help me to tell the story of your work on the project in the SR&ED claim are welcome.
I will also need the financial information related to the project (the amount of salary paid to the employees participating in SR&ED claimable projects, the subcontractor fees if you have any, cost of materials etc.)
In the process of my work I may send you e-mails if I need any additional information. I will then send the final claim for your approval.
Q. Should I go for OITC or for SR&ED?
A. OITC is a provincial rider for the federal SR&ED. This means that you don't go for one or the other - you apply for SR&ED, and if it is granted, you receive OITC automatically.
Q. How much do you charge? Is it on contingency basis?
A. We usually charge 25% of the refund, payable when you get the refund. If there is no refund, there is no fee.
Q. Do I need to wait for filing my income tax before we apply for SR&ED?
A. You cannot file SR&ED for a given year before you file the corporate tax for this year. Ideally you do both together, at the same time. If you have already filed your taxes but not SR&ED, you can still make a SR&ED claim for this year within 18 months of the end of the fiscal year.
Q. Do I need to complete the project before I claim SR&ED?
A. No, you don't have to wait until it is completed to apply for SR&ED. You can claim the work you have done in the fiscal year when this year is over.
Q. How long does it take to get the refund?
A. It may take a few weeks or a month to prepare a claim, depending on the complexity, and usually about 4 months to receive the refund if you file your T2 together with your SR&ED form. The CRA may set up a review which means they will want to meet you to verify the work that has been done. If this happens, we will come along and support you during the review (defending your claim). Only the information related to the SR&ED project you claim will be reviewed, not your entire financial information.
Q. What if I only got incorporated this year and functioned as a sole proprietor before that?
A. Companies other than CCPC (Canadian-Controlled Private Corporations), which includes sole proprietors, are entitled for significantly lower refunds. This basically means that claiming SR&ED for your past fiscal year may not be worth it, especially if you were the only person working on the project and had little or no payroll. Your corporation's next fiscal year will be a different story. I would like to have a look at your figures for the past year anyway, just in case (payroll if you had any, project expenses etc.)
Q. What would you recommend to facilitate getting SR&ED refund in the future?
A. As to your future work, here's some advice to ensure success of your SR&ED claim:
1. Incorporate if you haven't done that yet.
2. Have a payroll.
3. Create a paper trail, otherwise 6 months later you will not be able to remember when and what you did. It is especially helpful to create a separate SRED e-mail account and cc: to it all the e-mails that may be related to experimental development. Thus, 6 months later you will not have to browse madly through hundreds and thousands of e-mails looking for one particular conversation.
However many of these steps (incorporating, having a payroll) will cost you, so talk to your accountant and to us to determine the scenario that would maximize your tax return.
Dealing with technology? You might be eligible for government funding
SR&ED (Scientific Research & Experimental Development) is an incentive program by the Canadian government that refunds companies involved in Research and Development (R&D). (See the information about the program on the CRA website.) Canadian companies that spend money on creating or modifying products or processes through experimenting are eligible for SR&ED. Any company that deals with technology (software and hardware development, machinery, printing etc.) may qualify. If you created an entirely new industrial process or improved an existing one, if you took a database driver and rewrote it so its performance doubled, if you came up with a fuzzy logic algorithm to facilitate scheduling - all of this may be eligible. Innovation, uncertainties you overcame, and technological advancement are the criteria for eligibility. Even failed experiments may qualify. Non-Canadian owned companies also qualify, if they pay salary in Canada.
The SR&ED program is available to companies involved in Research and Development (R&D). Eligible expenditures include your time, employee and subcontractors labour, materials and equipment. SR&ED money is given as a refund for work already done.Read more about SRED