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We get it: Scientific Research & Experimental Development (SR&ED) tax credits can be more complex than they may appear on the surface. We can help.

Top 10 SR&ED myths to leave behind today

We get it: Scientific Research & Experimental Development (SR&ED) tax credits can be more complex than they may appear on the surface. Whatever your focus, chances are you’ve got questions about how SR&ED applies – or doesn’t apply – to you. That’s why we’ve put together a list of the top 10 SR&ED myths we hear most often, and the perspective you need to dispel those misconceptions now:

1. We don’t do R&D, so we wouldn’t qualify.
   
   Not so fast. SR&ED is different from what you may typically think of as R&D. In Canada, the Federal SR&ED program provides tax credits on work like prototyping, testing and developing technologically advanced products and processes. The work you’re doing may not feel like R&D in the most traditional sense of the term but it could very well qualify for an SR&ED incentive.
   
   
2. Count us out – our project failed.
   
   Any project that generates learning is a success which is why ‘failed’ projects can also qualify for SR&ED incentives. A SR&ED project could be a technical success or a technical failure from a business standpoint and still qualify for certain incentives. If a business project failed due to non-technical constraints (like time or cost), it might still qualify, too.
   
   
3. We won’t qualify because our project won’t be done this fiscal year.
   
   Timing is everything. SR&ED claims are filed on per fiscal year basis but if the project isn’t complete at the end of a fiscal year, many of the costs associated with the work can still be claimed in that year. Don’t wait until the project is over to claim the tax credits.
   
   
4. Fine, fine, but: we don’t pay taxes yet.
   
   That’s okay. Your company is still eligible. Even in a loss position, Canadian Controlled Private Corporations (CCPC) are eligible to receive a cash refund on their SR&ED expenses whether they pay taxes or not.
   
   
5. We’re planning to sell our prototype, so we won’t qualify.
   
   If you’re selling a prototype – or performing R&D work for a client – you may still be eligible for SR&ED incentives. There are specific rules and guidelines that come into play in these situations so don’t rule out anything without doing the due diligence. Explore these particular scenarios on a case-by-case basis.
   
   
6. We aren’t eligible for SR&ED credits because we’re already getting government funding.
   
   Don’t rule yourself out. Even if you’re receiving other funding, you may be able to claim for the excess amount of costs. For example, if you spend $100 on SR&ED and you receive $15 from another program, you may be able to claim for the remaining $85 of costs.
   
   
7. But, the competition is all over it, too.
   
   Even if industry competitors are already working on similar issues, or offering similar products, you may still be eligible for SR&ED incentives. Specifically, if your competitors’ work or knowledge isn’t publicly accessible in the same timeframe when you’re undertaking a SR&ED project, you can still claim the incentives.
   
   
8. We’re not the best record keepers.
   
   Formal records aren’t always required. Emails, meeting minutes, and notes are all admissible as SR&ED documentation. Records that substantiate a claim can look different from one organization to the next. Finding new ways to improve your documentation process without disrupting your current business processes can help ensure you’re even more prepared when preparing your next claim.
   
   
9. Start-ups won’t qualify.
   
   Actually, you might. Understanding the SR&ED program rules before – or while – you’re carrying out work can help you learn where you stand. It also enables you to think further ahead in terms of preparing, filing and defending your SR&ED claims because you’ll know the end goal from the get-go. Do the research now to make sure you’re leveraging all available incentives that can help a start-up company grow.
   
   
10. We’re too late to make the most of SR&ED incentives.
    
    You may not be. SR&ED claims can be filed with the Canada Revenue Agency (CRA) up to 18 months after your fiscal year end. That means if you have a December 2020 year end, you can submit a claim as late as June 2022. However, be aware that it’s a firm deadline. All claims must contain the specific CRA documents to be considered complete – but it’s a deadline you might still be able to meet.