Fake news in SR&ED

Is there more “Fake News” surrounding the SR&ED Program than the American Media, according to Trump? You decide… Here are just a few things we regularly hear when talking to people about the SR&ED program. 

Photo by AbsolutVision on Unsplash

We can’t make SR&ED submissions because… 

• We’re not creating something new and unique.  Fake news.  

• We’re pre-revenue.  Fake news.  

• We’re not profitable.  Fake news.  

• We’re foreign-owed.  Fake news.  

• We don’t have scientists or do research.  Fake news.  

• We only use sub-contractors.  Fake news.  

• We can’t claim software development.  Fake news. 

• We already completed our project.  Fake news. 

• We’re not yet complete our project.  Fake news.  

• We were told by someone else that this didn’t qualify.  Might be fake news. 

We are happy to offer free consultation and dispel all these myths! 

Supercharging your innovation journey – optimizing your investments through refundable tax credits

There’s no question that Canadians recognize the importance of innovation; it’s why we’ve gone to such great lengths to be on the forefront in this area. But do you have to be a James Gosling, Sandford Fleming or Mark Tilden to be recognized for you efforts? The acclaim received for these kinds of accomplishments may be highly coveted, but how does one get to the point where they realize their stroke of genius amidst all the iterations and failed attempts? The answer may include things like perseverance, determination, and a strong vision; and while these are pillars in any innovators journey, not having the capital to persist may be the only limiting factor. For this reason, one thing that all individuals who operate is the area of innovation should know is where to get the money to ensure their journey is steadfast and your goals are realized. There are many options when it comes to finding capital; but it always comes at a price. Perhaps in the form of shared equity, or high interest rates. So let’s look at one example that doesn’t involve either…

 For decades the Canadian Government has done their part to foster innovation here at home by rewarding companies who have attempted to be innovative through the Scientific Research and Experimental Development Program (SR&ED). This incentive program pays out nearly $4 Billion every year to companies that are likely no different than yours. From sole-proprietors to privately held corporations and publicly-traded companies, there is an opportunity for any company operating in Canada to file an SR&ED submission for the innovative work they’ve done. (The only exception to this is non-taxable companies like non-profits and charities). 

OK, you’ve got my attention. So what if I do make an SR&ED submission? Then what?

 Good question. Well, if you’ve met CRA’s requirements, as approximately 20,000 companies do each year, you’ll find that a considerable portion of the expenditures related to innovation will be refunded. And, ready for it… If you’re a privately held company with a small business status, this is cash refund from CRA.

 So, how much are we talking?

 Another good questions. Eligible companies are legally entitled to receive a refund of as much as nearly 70% of their dedicated payroll, nearly 35% of related invoices from sub-contractors and nearly 45% of the value of any wasted or transformed materials that went into the innovative efforts in the case of manufacturing.

 You keep saying “Innovative”. Don’t say anything, but I’m not sure I really know what that means. So, how do I know if my company should make an SR&ED submission?

 When it comes to the SR&ED program, there are only 3 criteria that determine one’s eligibility.

1.     Technological Uncertainty
2.     Technical Content
3.     Technological Advancement

Feel free to interpret it this way.

1.     You’re trying to achieve a commercial initiative and somewhere along the way you realize, we don’t have the technological knowledge-base to overcome a problem you’re presented with. Beyond this, you can’t find out the answer either; it’s either unknown, or no one is willing to share it with you.

2.     Through a systematic approach including various iterations and other forms of experimentation, you try to reduce or eliminate that technological uncertainty.

3.     Whether your commercial objective is achieved, or not, you learned something through your systematic approach, which in the context of the SR&ED program constitutes a technological advancement. Remember this, the resultant knowledge that is generated through a systematic investigation is considered technological advancement. 

 Let me get this straight… you’re telling me that that my company is entitled to a cash refund, because we encountered a technological problem during a commercial project that we tried to overcome, which resulted in us expanding our knowledge-base in that area of technology through our “R&D” efforts.

 Yes!!

 How come no one told me about this before!?

Don’t shoot the messenger, because they’re the one that can put you in contact with the think.COLLECTIVE

Supporting Canadian Corporate Innovation with SR&ED

When I first joined the world of science in 2010, I was so excited to contribute to innovation. I had dreams of developing technology that would change our society and make a meaningful contribution to achieving true sustainable development. Even though my doctoral thesis in bioenergy production will not win a Nobel Prize (oh man!), I hold on dearly to those dreams and I am still deeply inspired by innovation.  

I might have left the lab bench, but my quest for innovation persists. 

Canada is a country rich in talent. Last year alone, Canadians submitted more than 4,950 patent and industrial design applications to the Canadian Intellectual Property Office (CIPO), and in the third quarter of 2018 industrial production in Canada grew 9.5%, compared to the growth of 5.2% for the United States and 4.2% in Germany. With the USA submitting over 16,000 patents to the CIPO last year, we certainly have room to grow, but we are moving in the right direction.  

The way I see it, our industry is pushed by innovation in a similar way that evolution pushes nature. Companies need to stay on top of their products and technologies to stay competitive within their industry. Survival of the techiest, if you will.  

Innovative technologies and products do not necessarily need to come out of a lab the likes of NASA. We do what we can with what is available to us. As an example, the CEO of Genecis, one of my favorite startups in Toronto, tells the story about how her company’s technology started out using rice cookers as bioreactors! And they have developed one of the most innovative technologies out there, turning organic waste into bioplastics.  

It doesn’t hurt to have big toys to play with, but creativity is key here! Your hard work and dedication will allow you and your company to get bigger toys.  

So I want to make an invitation to companies in Canada to dream big and grow through innovation. It is up to you to tilt the balance in favour of a healthier, richer, brighter, stronger, and more sustainable future.  

Now, I once heard a very wise man say: “advice is welcome when it comes with the means to achieve it. Otherwise it is not so different than complaining”. So let me support this motion by providing information about one of the largest incentive programs the Government of Canada offers to foster innovation: the Scientific Research & Experimental Development (SR&ED) program, or “SHRED” for the friends.

The Scientific Research & Experimental Development (SR&ED) program 

The SR&ED program exists to foster innovation. This program rewards for-profit companies in Canada that are performing work to advance our scientific and technological knowledge, distributing over 3 billion dollars each year. Through the SR&ED program, a company can obtain the following benefits on eligible work:

• Approximately 65% of dedicated salaries and wages

• 34% of sub-contractors’ fees, and

• About 42% of fees incurred on wasted materials, prototypes, consumables, etc. 

• * % amounts vary slightly by province

The SR&ED program is administered by the Canada Revenue Agency (CRA), so the benefit that can be obtained by a company performing SR&ED eligible work is linked to their corporate tax return. Therefore, the company could see these benefits in the form of a tax credit or as a cash refund. 

Yes, you can opt for a cash refund of your SR&ED-related expenses. Cha-ching!   

But first, let's get something straight… The SR&ED program is a reimbursement of eligible expenses, not a grant. The main difference relies on the nature of the benefit: if the company is conducting eligible work, the company is legally entitled to that money. It is not a competition for money; it's reclaiming the money that you are legally entitled to.  

So who can apply to this program? Any company conducting basic research applied research or is conducting experimental development to develop or improve a product could very well be performing SR&ED-eligible work. To determine if your company is conducting an SR&ED project, there are three main eligibility criteria to be met:

• An SR&ED project seeks to solve a scientific or technological uncertainty

• The uncertainty faced in the SR&ED project is addressed through a systematic investigation or search

• Advancement of scientific knowledge or technological advancement result from the SR&ED project  

When people ask me about the SR&ED program, they often express feeling intimidated by certain words that describe the eligibility criteria, such as ‘scientific knowledge’ or ‘technological advancement.’ Innovation is not restricted to rocket science or reinventing the wheel. If your company is getting creative, and finding new ways to do things in your industry, you might be missing out on SR&ED money! Whether you are perfecting your brewing practices or developing new software, I highly encourage you to investigate the SR&ED program.  

If you are not sure whether your company is performing SR&ED eligible work, give me a shout! In support of innovation, I would love to provide a complimentary assessment to help your company continue your innovation projects.