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

Evidence, What Evidence?

This article is by Bruce Madole who kindly agreed to provide some interesting materials related to SR&ED.

Recent anecdotal evidence suggests that the Canada Revenue Agency (CRA) is becoming increasingly detailed (and according to some, who disagree with them, occasionally irrational and unreasonable), in its approach to supporting documentation.
This is news?
Certain newspapers or columnists continue to create stories about the fact that reports are going to be published, by various official bodies, about the state or the future of the SR&ED program, about the rampant unhappiness of consultants across the industry, and the rampant unhappiness of the CRA with many of those same consultants and their clients.  This is news? At best, it’s a teaser that someday soon, there may be news.
Let me recap – the government is giving away money to businesses, as a financial incentive to perform research, and some people are alleged to be acting unscrupulously to get their hands on some of it.  Is that news?
If I filed a news story that there are mosquitos in the woods north of Winnipeg, would that be news? I don’t think anyone would be a bit surprised.
A cynic might ask if this current fuss is a deliberate and somewhat cynical strategy by CRA to kick up dust and raise the debate about the necessary level of documentation.  What it seems to be doing, mainly, is stirring up old debates about whether CRA is an appropriate administrator for a tax incentive program… the idea being that providing incentives is a foreign and unfamiliar state of mind for a Crown agency that is historically more familiar with detection, collection and enforcement.  So, on balance… probably not.

Others within the industry have asked, though not necessarily in print, whether the situation within CRA is so toxic, adversarial and politicized that they are unable to sustain and present a consistent public policy in a program the growth of which has posed severe staffing and administrative challenges. But writing a story about political, budgetary and cultural challenges within a federal bureaucracy is like writing about the mosquitoes of northern Manitoba. Is this news?
Unquestionably, SR&ED claimants should keep detailed technical records about the work they are hoping to claim… assuming that they know in advance they will be wishing, someday, to claim it. However, I also understand why it doesn’t happen. And so does the CRA.
The CRA clearly understands that many first-time or early claimants may not have the processes in place to keep such records.  That’s why CRA has formal procedures, such as the “Letters and Records” memo, to remind claimants that adequate evidence is a condition of the right to recover SR&ED benefits from the Canadian government (and the taxpayers of Canada).
First time claimants, most of them small companies, are usually unfamiliar with the program requirements and usually are not included to such organized and methodical styles of record-keeping.  In most small companies, people tend to get together and talk about problems, technical or otherwise – they don’t tend to sit around in the lunchroom crafting careful technical lab or science reports with meticulously recorded hypotheses and painstaking test results.
Even in much larger organizations, there tends to be a belief that formal and documentary processes tend to slow down the actual work, getting in the way of “productivity” – which by the way assumes that supporting a claim for a failed experiment or engineering approach does not provide critical financial support for the continued pursuit of new technology advancement.
“We just want to DO the work,” you might hear, “not spend all of our time writing about how we plan to do it.”
Documentation is not fun, but neither is it accidental.  Is this news?
Filing taxes is probably not on the list of favourite things either, but we all understand that the tax authorities continue to expect receipts for deductions claimed, and that sort of thing.  So the day is unlikely to come, any time soon, in which the tax authorities will say to a claimant, “Evidence?  What evidence?  You don’t need any evidence… just take the money.”
That would be news.

Bruce Madole
Other articles by Bruce Madole in SRED Unlimited blog