Screws Tightened on the SR&ED Tax Incentive Program

SR&ED enables companies to earn investment tax credits on qualified expenditures in the form of cash refunds, reduction of tax payable or a combination of both. To qualify for the claim, companies have to perform research and development to create a new product or improve an existing one.

In recent years, the Canada Revenue Agency, which is the body that administers SR&ED, has been more stringent leading to a decline in the number of claims. In 2012, a spokesperson of the CRA stated that the federal budget had made the SR&ED program ‘more cost-effective and less generous’. Since then, measures in the federal budget have been made to address non-compliance by the members while at the same time trying to maintain the integrity of the program. These activities, which are ongoing, may have affected the number of claims.

The major problem has been that most new companies are unprepared for the administrative burden that comes with filing the SR&ED claims. Most of them even do not have the necessary documentation for their activities. In that case, the CRA will come with a verdict of ‘unsubstantiated’ claims and the company will get nothing. This has led to companies crying foul by the CRA and the entire SR&ED program. However, they are always advised to appeal the outcome if they are not satisfied. Unfortunately, these appeals could take up much of your time as well as resources.

In order to avoid inconveniences at the end stage of the claims of the program, the CRA has constantly reminded businesses and companies alike of the importance of constituting R&D in their activities. Having clear, in-depth records has also been an appeal as they contribute greatly to the success of the claims. If all these conditions are adequately satisfied, the whole process is worth it and will benefit your company in a unique manner. Swanson Reed can help you to substantiate a claim or assist with audits. Contact us to speak with an SR&ED specialist.