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SR&ED Research and Development FAQ’s
What is the difference between R&D, SR&ED, SRED or “SHRED”?
Research and development (R&D) is an activity defined within the company as advancing its product or technology, but in and of itself does not define what is eligible or ineligible within the context of the federal incentive program, Scientific Research & Experimental Development (SR&ED). The acronyms ‘SRED’ and ‘SHRED’ are also commonly used within the industry in reference to the same program.
We do not conduct “scientific research”. Are we still eligible?
Many potential claimants mistake the SR&ED program as being a purely research-driven or laboratory setting claim based on its title. In fact, 90% of the claims submitted to the Canada Revenue Agency (CRA) fall within the area of “experimental development”. If your company has adopted a systematic approach to its development of a product or process and required experimentation in an attempt to solve a problem, address technical uncertainty or progress with a project that is outside the norm of activities – you are likely eligible for the program.
Our development project was a failure. Are we still eligible?
Commercial success or failure is not a prerequisite of the SR&ED program. In fact, project failure is likely more indicative of the experimental nature of the activity and level of technical challenges (assuming the project was not abandoned for strictly business or financial reasons). Projects that qualify may be identified as being an SR&ED activity at the conception stage. Whereas the failure of what was originally deemed a routine project activity – may become SR&ED eligible if the failure itself exposes the activity as being beyond the existing know-how within the company.
Can we claim expenditures on product marketing, packaging or business development?
Depending upon the company, many new projects may combine a product’s development with costs for branding, licensing, patenting or other sales related activities. These costs are not directly eligible under the SR&ED program. However, marketing and general administration costs are typically recouped through the ‘proxy overhead’ of the claim.
What is the difference between a tax credit and a tax refund?
Many factors will determine if your company is eligible for a tax credit or a tax refund or a combination of both. Your accountant or auditor will be able to determine the level at which you qualify. Most small to medium-sized companies can expect a tax refund which is first applied to any taxes owing – the remainder of which is refunded as cash directly to the claimant. Tax credits however are restricted only to be applied to taxes owing, and therefore require profitability by the company in order for those credits to be applied and benefit realized. (non-CCPC)
How much cost is there up-front to utilize your services?
Our fees are wholly contingent upon the success of the SR&ED claim. Pinchevsky does not require its fees until the client has received a cash refund or tax credits based on the acceptance of its claim by the CRA.
Is the SR&ED program a grant, repayable loan or equity investment?
The Scientific Research & Experimental Development program is neither of these. As a tax-based incentive program, claimants can only realize the tax refund or credit after the expenses have been booked and paid for. Unlike grants that may be given to use for specific purposes, your cash refund or tax credit can be used without any additional restriction. You are not required to repay any portion of the tax benefit and no dilution will occur to your company’s equity as a result of participation.