scientific research and experimental development (sr&ed) program: should you take part? douglas...

SR&ED should You apply?

Scientific Research and Experimental Development

(SR&ED) Program: Should You Take Part?

Douglas Clay

SR&ED Program

Calgary, Alberta


What is the SR&ED What is the SR&ED Program?Program?

…a tax incentive program to encourage Canadian businesses of all sizes to conduct R&D that will lead to new or improved technologically advanced products or processes.


TopicsTopics

SR&ED Program Overview What it is? What it is not? Factors Affecting Eligibility “Routine” Engineering...

versus SR&ED So what? Should You apply? Questions and Answers


TopicsTopics

Single largest government support for science and technology in Canada

One of the world’s best tax-based incentive programs

Entitlement program, not a grant

CANADA CUSTOMS & REVENUE AGENCY

ALLOTHER

DEPARTMENTS


Grant vs Entitlement Grant vs Entitlement FundingFunding

SR&ED Investment Tax Credit Demand program - no limit on

program spending R&D broadly based Eligibility defined in law Non competitive


The SR&ED ProgramThe SR&ED Program

Encourages R&D in Canada Used by ~ 11,000 companies and individuals

annually Provides ~ $1.5 billion/yr in tax credits ITC (Investment Tax Credit) of 20 to 35% of

SR&ED dollars spent Delivers benefits after SR&ED performed


How SR&ED Can Be How SR&ED Can Be PerformedPerformed

Internally: by claimant Externally: on a contract basis By payments to:

– Universities– Research institutes– Canadian corporations– Approved associations


What Is SR&ED?What Is SR&ED?

Systematic investigation Or search for knowledge

Carried out in a field of science Or technology

By means of experiment Or analysis


WhatWhat Is Not SR&ED? (1)Is Not SR&ED? (1) Market research or sales promotion

Quality control or routine testing

Research in social sciences or humanities

Prospecting, exploring, drilling for or producing minerals, petroleum or natural gas


What Is Not SR&ED? (2)What Is Not SR&ED? (2)

Commercial production or use of a new or improved material, device or product

Style changes

Routine data collection


Categories of SR&EDCategories of SR&ED

1. Basic research

2. Applied research

3. Experimental development for achieving scientific or technological advancement

4. Support work for 1, 2 or 3


ProgramProgram BoundariesBoundaries

“GREY” AREAS

FINANCIALBENEFITSEARNED

HERE

OUTOF BOUNDS

OTHERR&D COSTS

OTHER R&D WORK

SR&ED WORK

SR

&ED

CO

STS


FactorsFactors AffectingAffecting EligibilityEligibility

The 5 Minute Version

ResearchResearch & Development& Development

Systematic experimentationto provide missing information

Conceptualization

Problem definitionand design process

Commercialization

DevelopmentDevelopmentDevelopmentDevelopment

General knowledge

Formulate development objectives

Conceptualize solutions

Assess concepts / Check feasibility

Formulate development objectives

Conceptualize solutions

Assess concepts / Check feasibilityCommercial needs

Intuition

Creative genius

Experience

DevelopmentDevelopmentDevelopmentDevelopment

Formulate development objectivesConceptualize solutions




Define technical problem(s)Define technical problem(s)

Identify information requirementsIdentify information requirements

Design product, process or featureDesign product, process or feature

Build commercial test model(s)Build commercial test model(s)

DevelopmentDevelopmentDevelopmentDevelopmentFormulate development objectives

Conceptualize solutionsAssess concepts / Check feasibility







Verify or check model performanceVerify or check model performanceTroubleshooting

Trial-and-Error

De-bugging

Standard testing

Commercialize product or process...Commercialize product or process...Focus

DevelopmentDevelopmentDevelopmentDevelopmentFormulate development objectives








Verify or check model performanceVerify or check model performance

Commercialize product or process...Commercialize product or process...

“RoutineEngineering”

Increasing

Detail &

Feedback

Precision

ResearchResearch & Development& Development ResearchResearch & Development& DevelopmentFormulate development objectives








y=?

Verify model performanceVerify model performance

Commercialize product or process...Commercialize product or process...Focus

SR&ED

ResearchResearch & Development& DevelopmentResearchResearch & Development& Development









(S/T Uncertainties)Identify research questions

(S/T Advancements)Hypothesize answers

(S&T Content)Plan & conduct experiments

Y =?

Y =x2

Verify model performanceVerify model performance

Commercialize product or process...Commercialize product or process...

Build experimental apparatus or prototype

Focus


Work That May Be EligibleWork That May Be Eligible Engineering or design Operations research Mathematical analysis Computer programming Psychological research Testing Data collection

...If essential to an otherwise eligible project as a supporting activity

SR&ED


Assessment Criteria for EligibilityAssessment Criteria for Eligibility

Scientific Or technological advancement Your Hypothesis

(resolving a Scientific Or technological uncertainty Your Question )

Scientific And technical content Your Systematic Approach


SR&ED DefinitionSR&ED Definition

“Systematic investigation or search carried out in

an eligible field of science or technology through

experiment or analysis”

Income Tax Act, §. 248(1)


Project CompletionProject Completion Can it be consistently demonstrated under

appropriate conditions that the technological problem has been resolved?

May occur at bench, pilot or plant scale. In some cases, it may continue into the

initial stages of commercial production. Project failed or abandoned.


Documentation & EvidenceDocumentation & Evidence

Dated documents of:Original project goalsThe progress of the workHow work was carried outResults & conclusionsOther evidence (e.g., samples, pictures, etc.)

Documents created during the R&D process


Do You do SR&ED?Do You do SR&ED?

Research contracts from foreign clients Collaborative research with local partners Contracting research to others (in Canada)

to solve your problems

YESYES

R&D project.Is it SR&ED?

No - Go

YE

S

carry on with project

Place SR&ED in task(s)

Is project foreign funded or over budget? carry on

with projectNo - Go

Over budget >$ threshold

Prepare SR&ED

claim

For

eign

O-B

udge

tGo No

Review resources available

Go - resources available

Go

/ No

- G

o G

o / N

o -

Go

Dec

isio

n T

ree

Dec

isio

n T

ree

Assist client to claim

SR&ED ITC

No-

Go


1) What is SR&ED?

2) Do you do it?

3) Do your competitors do it?

4) Are you eligible?

5) Is it difficult?

6) Is it worth it?

7) How do you apply?

Key QuestionsKey Questions


What Should You Do?What Should You Do? Claim all foreign funded SR&ED

activities Review all Canadian funded SR&ED

activities Offer clients a “Project Description”

for their SR&ED activities

DiscussionDiscussion

Questions / Answers

Web site: www.ccra.gc.ca/sred