Innovative Tech Funding with Scientific Research and Experimental Development (SR&ED) program

The How & Why of SR&ED Tax Credits

The Scientific Research and Experimental Development (SR&ED) program is a tax incentive program administered by the Canada Revenue Agency (CRA) that provides over $3 billion annually to Canadian businesses for work they have done to resolve technological challenges and improve their technological knowledge base.

Like other tax incentive programs, SR&ED is governed by the Income Tax Act. The prosecution of SR&ED is defined as “…a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis… for the advancement of scientific knowledge… or for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products, or processes, including incremental improvements thereto…”.

Unlike other government support programs, however, SR&ED has no limit on this financial reimbursement: If your projects meet program eligibility, you are entitled to receive the full financial benefit in the form of an investment tax credit (ITC) and/or a cash refund.

You may be asking yourself: “My company has experienced technological challenges, so how can we take advantage of this incredible program?” Through this SR&ED guide, we will dive into the details of what makes your projects eligible for SR&ED by looking at why the work was undertaken and how the work was performed.

Determine Why the Project Was Undertaken

In many cases, your business project requires that a development project be undertaken, and these development activities are what to look out for when considering SR&ED. For a development project to be in the realm of SR&ED, you must have encountered a scientific or technological uncertainty that you could not overcome by using your existing knowledge base or by applying publicly available solutions to your specific situation.

In other words, to be eligible for SR&ED, make sure your project fulfills the following:

  1. There is a gap in knowledge between your project starting point and your project objective, and
  2. You are unable to bridge this gap using what you already know or what is available in the public domain.

This is the “why” of SR&ED: you want to advance the science or achieve a technological advancement—to close this gap and acquire new knowledge—for the purpose of creating new science or improving existing technology. Communicate that there was a limitation in the underlying scientific or technological understanding which could not be overcome by known methods. This will satisfy one of the important requirements for a project to be considered SR&ED.

Determine How the Work Was Performed

You’ve established your existing box of tools could not achieve your project objectives. Now you need to consider how you would tackle your problem.

As defined above, addressing this uncertainty needs to be systematic or follow the “scientific method.” Although it is not always clear that a project aligns with the scientific method in a business context, it is very important that the process you took in trying to overcome your uncertainty was methodical in nature.

Fundamentally, this is the scientific method or the “how” of SR&ED: you followed an organized, logical series of steps designed to overcome your scientific or technological uncertainty to generate new knowledge and to achieve a scientific or technological advancement. Demonstrate that your approach to solving your problem was consistent with the scientific method. This will satisfy the other requirement for a project to be considered SR&ED.

Applying for SR&ED Tax Credits

With this new knowledge, if you’ve ever been involved in business or development projects that advanced the science or technology (why you did the work) using a methodical and logical approach (how you did the work), you may be in the world of SR&ED. Let the professionals at Mentor Works, a Ryan company, help you identify those SR&ED projects so that your business can benefit from the SR&ED program and become more competitive in your space.

If your business is seeking assistance with applying for Canadian government tax credits, grants, and wage subsidies, Mentor Works’ team of SR&ED consultants and government funding application writers can assist your business through the application process to make it as easy as possible. Speak with a member of our team to see if your business is eligible for funding.

Funding Funding Now, Contact Mentor Works

Jeffrey Stewart  - Ryan SR&ED Team

Author: Jeffrey Stewart

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