SR&ED For Manufacturing Processes

Many small and medium-sized companies do not believe that the SR&ED tax credit can be a good source of funding for them. Often, they do not realize that a research lab is not required to claim the credits; the credits are available to companies who have applied research to a specific, practical application.

Occasionally, firms find themselves changing manufacturing processes or are faced with technical problems that do not have known and documented solutions. These activities that may lead to a firm being eligible for the SR&ED tax credit. Another eligible expense includes costs associated with implementing or upgrading Enterprise Resource Planning (ERP) to solve a problem. The main eligible expenditure related to the ERP consists of wages for consultants and support staff. Up until recently, it was possible to claim capital costs. However, new regulations state that this is no longer the case.

The SR&ED Tax Incentive program allows Canadian Controlled Private Corporations with under $5 million in net income to claim 35 percent of eligible expenditures. In the case of larger organizations, 15 percent of expenditures can be claimed as R&D investment tax credits.

For first time applicants, documentation can be quite challenging. The company must provide evidence of the entire process and show which activities were done and by whom. Firms are therefore advised to plan their documentation prior to forwarding their claims to the Canada Revenue Agency. In some cases, firms opt to use third party consultants who are familiar with the requirements of the CRA. Third party consultants should never be paid up front as this will ensure that they are committed to ensuring that your claim is accepted and paid.

The SR&ED Tax Incentive can produce substantial savings for qualified manufacturing process improvements. Make sure you reach out to Swanson Reed tax advisors for more on SR&ED claims.