FREQUENTLY ASKED QUESTIONS
HOW COME I'VE NEVER HEARD OF SR&ED BEFORE? DOESN'T MY ACCOUNTING GROUP KNOW WHAT THEY'RE DOING?
The reason your accountant hasn’t mentioned SR&ED before probably has to do with how complicated and specialized writing SR&ED reports can be – quite simply, many accountants have a difficult time finding highly qualified and experienced SR&ED consultants to introduce to their clients.
The Accolade Consulting Group Inc. concentrates solely on the SR&ED portion of the Income Tax Act, and only writes reports for the companies involved with the industries where our people have significant experience.
I DON'T THINK MY COMPANY DOES ANY ELIGIBLE SR&ED WORK.
This is the most common misconception regarding the SR&ED program, and is something we hear almost every day. If you answered “yes” to more than a few of the questions in the WHAT ACTIVITIES QUALIFY AS SR&ED? (detailed definition) section, chances are pretty good that you have some claimable projects.
Either way, it costs you nothing more than 45 minutes of your time to have our staff visit you and give you a free, no-obligation assessment at your facility.
The bottom line is that our free assessment may help identify money your company has already spent – with the SR&ED program being the only possible way to get any of it back. Assuming the right conditions are present, getting a significant amount back through SR&ED can benefit your business’ bottom line tremendously.
WHAT ARE INVESTMENT TAX CREDITS?
Companies who successfully claim for SR&ED earn investment tax credits (called ITCs), which are used to offset Federal or Provincial taxes owed. Some ITCs can be carried forward up to 20 years, or back as many as 3 years. In certain circumstances, you can even receive refundable ITCs (i.e. cash). SR&ED tax credits are one of the most significant sources for funding R&D in Canada.
CAN ANY COMPANY CLAIM?
Any individual (sole proprietor), private, publicly traded, or foreign-owned company that has filed a corporate tax return in Canada can claim SR&ED, (provided of course, that eligible SR&ED activities have also been performed). Not-for-profit institutes and government research agencies are not able to claim SR&ED themselves, but their corporate clients can.
WILL MY COMPANY BE AUDITED AS A RESULT OF MY SR&ED CLAIM?
A SR&ED claim will not lead to a full business audit, unless CRA believes they have evidence of fraud. Assuming the presence of proper disclosure and accurate record-keeping, CRA will not perform a general audit of your company as a result of filing a SR&ED claim. Sometimes, the CRA chooses to review the SR&ED claim itself, but in that case only the specific SR&ED expenses/activities you are claiming will be reviewed.
HOW DETAILED DOES MY CLAIM HAVE TO BE?
For a first-time-claimant, CRA will allow reasonable applications for SR&ED grants even though they may contain data that contains slightly less detail than they normally desire. Once you have completed a SR&ED claim, however, CRA will expect to see organized documentation of your projects. This is no problem, however - Accolade Consulting provides all clients with a simple and easy-to-use data capture system that covers all CRA requirements, at no extra charge.
WHAT IF OUR PROJECT(S) FAILED?
Receiving SR&ED benefits is not contingent on whether the project succeeded, and a project’s failure has no effect on your eligibility to claim for the recovery of part of your expenses - as long as the project meets CRA’s three main technological criteria.
HOW LONG DOES IT TAKE?
Corporations have 18 months and individuals/sole proprietorships have 17.5 months from the end of the tax year in which the expenditures were incurred to file an SR&ED claim.
Generally, Accolade Consulting can prepare a claim for submission to CRA within a matter of weeks, assuming that the necessary information is relatively accessible. An especially large claim, or a claim lacking the majority of necessary information could take several months to complete. This is why CRA insists that all claimants employ some form of data capture system – to ensure that claims can be filed as quickly and accurately as possible.
In terms of processing your SR&ED claim, CRA has the following service standards which they are committed to meeting 90% of the time:
-
If a SR&ED claim has been accepted as filed (no review necessary), it will be processed within 60 calendar days of the date CRA receives the complete claim
-
Refundable claims selected for review by CRA will be completed within 180 calendar days of the date CRA receives the complete claim
The best way to get your results fast is to submit a complete, well-documented and accurate claim each year along with your corporate taxes.
HOW MUCH WILL I GET BACK?
The short answer is – the company will receive somewhere between 17.98% - 42.29% of total SR&ED expenditures + proxy overhead.
There are three key factors that determine what rate and which tax credits the company will receive from the Federal and Provincial SR&ED programs, including:
-
ownership structure
-
amount of taxable income
-
amount of taxable capital
CCPCs (Canadian-Controlled Private Corporations) can qualify for either the “enhanced rate” or the “basic rate” – therefore, CCPCs should make sure to check with their accounting groups to verify whether or not the company qualifies for the SR&ED program’s “enhanced rate”, “basic rate”, or somewhere on a sliding scale in between (depending on the company’s taxable income and taxable capital, described in more detail below).
If you are a privately-owned company who has less than $500k in taxable income in the year prior to the year being claimed for SR&ED (AS WELL AS less than $25M in taxable capital employed in Canada in the year prior to the year being claimed for SR&ED), you should be able to claim SR&ED at what is called the “enhanced rate”. Such companies receive refundable ITCs (i.e. cash) for their Ontario Innovation Tax Credit (OITC) as well as their Federal SR&ED ITC. Both conditions described above must include any associated companies.
Privately-owned companies who are not under both limits described above, but have between $500-800k in taxable income in the year prior to the year being claimed for SR&ED, OR $25-50M in taxable capital employed in Canada in the year prior to the year being claimed for SR&ED, will receive a blend of refundable and non-refundable ITCs. Both conditions described above must include any associated companies.
In all other situations, claimants receive tax credits only, which are still incredibly useful as they can be used to offset outstanding taxes. Tax credits may be carried forward up to 20 years or back as many as 3 years. Contact the Accolade Consulting Group Inc. for more details about this or any other questions you might have.
HOW DO FEDERAL AND ONTARIO SR&ED CREDITS ADD UP?
Sole proprietorships (individuals), partners of a partnership, beneficiaries of trusts, and some CCPCs (as described above) qualify for the SR&ED program’s “basic rate” and can expect to receive:
-
Ontario Research and Development Tax Credit - ORDTC (3.5% of the total SR&ED expenditures including proxy overhead), these are tax credits only (carry-forward up to 20 years, or carry-back as many as 3 years)
-
Federal SR&ED ITC (15% of the once-reduced expenditure pool - meaning 15% of the total SR&ED expenditures including proxy overhead, minus 3.5% for the ORDTC)
-
In simpler terms, this means you will receive 17.98% of the total SR&ED expenditures including proxy overhead
CCPCs qualifying for SR&ED’s “enhanced rate” should expect to receive:
-
Ontario Innovation Tax Credit - OITC (8% of total SR&ED expenditures including proxy overhead), these are refundable tax credits (i.e. cash)
-
Ontario Research and Development Tax Credit - ORDTC (3.5% of the once-reduced expenditure pool - meaning 3.5% of the total SR&ED expenditures including proxy overhead, minus 8% for the OITC above), these are tax credits only (carry-forward up to 20 years, or carry-back as many as 3 years)
-
Federal SR&ED ITC (35% of the twice-reduced expenditure pool - meaning 35% of the total SR&ED expenditures including proxy overhead, minus 8% for the OITC and minus 3.5% for the ORDTC)
-
In simpler terms, this means you will receive 42.29% of the total SR&ED expenditures including proxy overhead
CCPC’s who do not qualify for the “enhanced rate” will have to ask their accounting group if they are on a sliding scale between the “enhanced rate” and the “basic rate”, or whether they only qualify for the “basic rate”.
COSTS INVOLVED WITH CLAIMING SR&ED
By its own estimates, CRA has determined that the average company spends up to 25% of its own SR&ED ITC amount to assemble a claim using an in-house team. The cost of assembling a SR&ED claim drops with claim experience, using external consultants or hiring an experienced SR&ED expert on your staff.
Remember that compiling data, writing SR&ED technological reports and installing/managing your data capture system is all we do everyday – it is most likely that we can manage your SR&ED claim cheaper and more effectively than you can do in-house.
MINIMUM OR MAXIMUM CLAIMS
There are no parameters on the amount of your claim - but for small claims with less than $5,000 in R&D labour, you should weigh the cost benefit and future growth of your R&D before expending any of your resources to make a claim.
Qualifying companies claiming 35% are able to take advantage of this rate to a maximum of $2 million in ITCs. Any amount past $3 million will be calculated at 15% (not including Ontario’s 8% contribution).
Just remember that you have 18 months from your fiscal year end to claim SR&ED, and that it is more efficient for first-time claimants to try and file two years at once if claims are of average size.
HOW SUCCESSFUL ARE ACCOLADE'S SR&ED CLAIMS?
To date, our report writing staff has never seen a claim refused and has seen approximately 75% of our SR&ED reports approved with no review – the pinnacle of our profession.
Approximately 15% of the time, our reports go through a financial review only – generally a fact checking and confirmation exercise.
Accolade Consulting only takes on clients with a reasonably high level of refund potential.
WE WERE EITHER TURNED DOWN FIVE YEARS AGO, OR WE ENDED UP ACTUALLY RECEIVING FAR LESS THAN WE CLAIMED – WHY SHOULD I BOTHER WITH THE SR&ED PROGRAM AGAIN?
First, a great many things have changed in the SR&ED program, and CRA has become much more "claimant-friendly" in the past five years. They operate within clearly laid-out guidelines, and now review projects instead of challenging them, as was the case many years ago.
We are SR&ED specialists and know exactly what to look for and how to structure a successful filing. We only take on clients that we know are eligible to receive SR&ED benefits.
Most importantly, hiring Accolade gives your company the security of contingency – if your claim is refused, you owe us nothing.
SIMPLE QUESTION - WHY GO WITH ACCOLADE OVER THE COMPETITION?
Simple answer – much more service at an extremely competitive price. We are a growing firm that aims to build long-lasting relationships with good clients – as such, we differentiate by offering a level of service and expertise in this field that other firms simply cannot match, regardless of their size.
In this spirit, we concentrate on working as closely as we can with your staff – which allows us to most effectively represent you to the CRA, and gives you the best chance at realizing the Investment Tax Credits your company deserves.
HOW DO I START THE BALL ROLLING ON MAKING A SR&ED CLAIM?
If you think your company might be qualified to claim SR&ED tax credits, contact us to set up a free introductory assessment, during which we will quickly identify whether or not your company is performing SR&ED-related activities. If there is claimable work, we will make a contract proposal and begin collecting relevant data.
Call Accolade today, we can help you!