Hmm, I wonder if anyone has done this before…
This is a key question for many businesses that are interested in the SR&ED tax credit, but most articles related to this topic are unnecessarily complicated. This post outlines some simple questions that will help a SR&ED neophyte examine existing projects with an eye for recapturing expenses using the SR&ED tax incentive program.
6 Questions for SR&ED Eligibility
Can you answer yes to any of these questions? (Note: Your project’s success is not a requirement for eligibility, which is why we’ve used the term “try” below in relation to achieving goals.)
1) Are you developing new products or processes for your business that have an element of science or technology? (Eg. recipes involve chemistry, iPhone apps involve computer science).
2) Are you considered to be a knowledgeable authority in the specific area of science and technology, or did you engage the services of an expert?
3) Even with pre-existing methods, processes, and information available to you, did you still have to experiment in order to try and achieve your goals?
4) Were you unsure a) if you could achieve your goals at all, or b) if you knew the best way of achieving these goals?
5) Did the SR&ED project require you to try several different approaches, with varying results?
6) At the end of the project, had you advanced your organization’s understanding of the underlying science and technology?
If you answered “yes” to most of the above questions, then you owe it to your SR&ED project to learn more about the SR&ED program or even contact a qualified a professional. Many private firms offer a free consultation to determine if your work is eligible.
CRA’s Eligibility Self-Assessment Tool
To get a better sense of whether you’re SR&ED eligible, you can try out the CRA’s Eligibility Self-Assessment Tool (ESAT). It consists of a short, eight-question survey about your project. All of the questions are taken from current SR&ED policies and are fairly broad, but they are used by the government to establish SR&ED eligibility. The ESAT is primarily aimed at small- and medium-sized businesses or anyone who is using the SR&ED program for the first time. It provides an excellent starting point for newcomers, and is much more accessible than slogging through the entire SR&ED section of the Income Tax Act.
A Few Words of Caution Re: SR&ED Eligibility
Keep in mind that the ESAT often gives misleading answers. The survey demands simplistic answers, and doesn’t take into account industry-specific circumstances which can affect your claim. If you are uncertain about a project, especially if you are making your first SR&ED tax claim, consider speaking with a consultant or tax credit coach. Any reputable group will offer a free initial assessment over the phone. Based on this, you can decide if it is worth your time to prepare the full SR&ED claim.
This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.