A lot of readers have reached out about one of my previous posts: “Getting the government to help with your product strategy,” so I thought I’d write a follow up with a bit more elaboration on SR&ED and how to get started with it.
The Scientific Research and Experimental Development (SR&ED) tax credit, has been available in some form since 1944 and provides over $4 Billion in tax credits for over 18,000 organizations each year.
The purpose of the SR&ED program is to incentivize businesses to conduct research and development (R&D) that will lead to new, improved, or technologically advanced products and processes. The credits have traditionally been accessed primarily by manufacturing. Often overlooked is the enormous R&D investment associated with software development and even prompted the government to conduct a webinar to educate the community on the missed opportunity.
If your R&D efforts are eligible, you can get up to 35% of your expenditures (e.g., Salaries and Wages) back in the form of tax credits. What this means is that if, for example, you have $1 Million in eligible expenditures, you can get up to $350,000 in federal tax credits.
To determine whether the work could be eligible for SR&ED, at a minimum, you must be able to answer the five questions with “Yes.”
Is there a scientific or technological uncertainty?
Does the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Is the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by experiment or analysis?
Is the overall approach to achieving a scientific or technological advancement?
Will, there be a record of the hypotheses tested, and the results kept as the work progresses?
If your project is eligible, you must, among other things, ensure that you properly document SR&ED qualified work, including time spent. In general, if you’re using systems like Jira, Confluence Asana, GitHub, you can leverage them as proof. At the end of the year, you’ll have to have to file a claim with the CRA.
The whole process can get confusing, especially if you’re starting, which is why many consultants focus on helping companies with their SR&ED claims. If you search on the web, you’ll be able to find some that can help.