SR&ED Credits Receive Intense Scrutiny
Many companies that do research and development do not avail themselves of tax credits because they are not aware of them or are afraid of all the hoops that they have to go through. If one hoop is not jumped or if it is not done correctly, the whole tax credit can fall apart. That is why companies often use an outside firm that specializes in this type of tax preparation.
SR&ED tax credits are meant to make it easier for companies to put money into making their products better. Unfortunately, the scrutiny that the credits receive often keeps companies from taking advantage of them or even doing research and development in the first place.
The scrutiny doesn’t begin with the Canada Revenue Agency (CRA), but with the company itself. Whether it is determining if existing R&D efforts are eligible or if you should be considering developing an R&D operation, the requirements to qualify for the SR&ED credits are intricate and many. If you do not qualify for one of them, the program probably will not qualify at all. All the money that was spent, potentially millions, will be a total loss with no chance of an SR&ED credit. The credit was to spur the growth of the economy, but only for those that are able to do it within the rules and regulations.
Renewal and Expiration
The SR&ED tax credits are not automatically renewed every year. Like many tax credits, they are given so many years of implementation and then must be either renewed or allowed to expire. The renewal is never a guarantee, so before considering developing an R&D program with the decision to apply for the credits for a given number of years, make sure the credits will be around. The last thing a company wants is to spend millions of dollars on R&D only to have the tax credit package removed.
Scrutiny After Filing
Once the proper forms have been completed, the CRA will go over the program with a fine-toothed comb, as they want to make sure the program fits all the criteria and that the amount received is actually the amount owed by the CRA. If anything seems out of place, the business could be audited. This is a process that no one enjoys, but if you have all the proper paperwork and a strong tax company at your side, the company should weather it without a problem. Along with a possible audit, the company may also receive additional information from CRA bodies and agencies prior to its approval.
Research and development is a vital aspect to many businesses. The development of new products and the improvement of existing products is one way a company can generate additional revenue. The money to develop these products can be very significant, and that is why the tax credit was created. It is worthwhile for companies to go after them, but only if they can follow the rules.