Scientific Research and Experimental Development (SR&ED) Program: Should You Take Part? Douglas Clay SR&ED Program Calgary, Alberta

SR&ED should You apply? What is the SR&ED Program? …a tax incentive program to encourage Canadian businesses of all sizes to conduct R&D that will lead to new or improved technologically advanced products or processes.

SR&ED should You apply? Topics  SR&ED Program Overview  What it is?  What it is not?  Factors Affecting Eligibility  “Routine” Engineering... versus SR&ED  So what? Should You apply?  Questions and Answers

SR&ED should You apply? Topics  Single largest government support for science and technology in Canada  One of the world’s best tax- based incentive programs  Entitlement program, not a grant CANADA CUSTOMS & REVENUE AGENCY ALL OTHER DEPARTMENTS

SR&ED should You apply? Grant vs Entitlement Funding SR&ED Investment Tax Credit  Demand program - no limit on program spending  R&D broadly based  Eligibility defined in law  Non competitive

SR&ED should You apply? The SR&ED Program  Encourages R&D in Canada  Used by ~ 11,000 companies and individuals annually  Provides ~ $1.5 billion/yr in tax credits  ITC (Investment Tax Credit) of 20 to 35% of SR&ED dollars spent  Delivers benefits after SR&ED performed

SR&ED should You apply? How SR&ED Can Be Performed  Internally: by claimant  Externally: on a contract basis  By payments to: – Universities – Research institutes – Canadian corporations – Approved associations

SR&ED should You apply? What Is SR&ED?  Systematic investigation Or search for knowledge  Carried out in a field of science Or technology  By means of experiment Or analysis

SR&ED should You apply? WhatIs Not SR&ED? (1) What Is Not SR&ED? (1)  Market research or sales promotion  Quality control or routine testing  Research in social sciences or humanities  Prospecting, exploring, drilling for or producing minerals, petroleum or natural gas

SR&ED should You apply? What Is Not SR&ED? (2)  Commercial production or use of a new or improved material, device or product  Style changes  Routine data collection

SR&ED should You apply? Categories of SR&ED 1. Basic research 2. Applied research 3. Experimental development for achieving scientific or technological advancement 4.Support work for 1, 2 or 3

SR&ED should You apply? Program Boundaries “GREY” AREAS FINANCIAL BENEFITS EARNED HERE OUT OF BOUNDS OTHER R&D COSTS OTHER R&D WORK SR&ED WORK SR&ED COSTS

SR&ED should You apply? FactorsAffectingEligibility Factors Affecting Eligibility The 5 Minute Version

Research& Development Research & Development Systematic experimentation to provide missing information Conceptualization Problem definition and design process Commercialization

DevelopmentDevelopment General knowledge Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Commercial needs Intuition Creative genius Experience

DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s)

DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) Verify or check model performance Troubleshooting Trial-and-Error De-bugging Standard testing Commercialize product or process... Focus

DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) Verify or check model performance Commercialize product or process... “Routine Engineering” Increasing Detail & Feedback Precision

Research& Development Research & Development Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) y=? Verify model performance Commercialize product or process... Focus

SR&ED Research& Development Research & Development Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) (S/T Uncertainties) Identify research questions (S/T Advancements) Hypothesize answers (S&T Content) Plan & conduct experiments Y =? Y =x 2 Verify model performance Commercialize product or process... Build experimental apparatus or prototype Focus

SR&ED should You apply? Work That May Be Eligible  Engineering or design  Operations research  Mathematical analysis  Computer programming  Psychological research  Testing  Data collection ...If essential to an otherwise eligible project as a supporting activity SR&ED

SR&ED should You apply? Assessment Criteria for Eligibility  Scientific Or technological advancement Your Hypothesis (resolving a Scientific Or technological uncertainty Your Question )  Scientific And technical content Your Systematic Approach

SR&ED should You apply? SR&ED Definition “Systematic investigation or search carried out in an eligible field of science or technology through experiment or analysis” Income Tax Act, §. 248(1)

SR&ED should You apply? Project Completion  Can it be consistently demonstrated under appropriate conditions that the technological problem has been resolved?  May occur at bench, pilot or plant scale.  In some cases, it may continue into the initial stages of commercial production.  Project failed or abandoned.

SR&ED should You apply? Documentation & Evidence Dated documents of:  Original project goals  The progress of the work  How work was carried out  Results & conclusions  Other evidence (e.g., samples, pictures, etc.) Documents created during the R&D process

SR&ED should You apply? Do You do SR&ED?  Research contracts from foreign clients  Collaborative research with local partners  Contracting research to others (in Canada) to solve your problems YES

R&D project. Is it SR&ED? No - Go YES carry on with project Place SR&ED in task(s) Is project foreign funded or over budget? carry on with project No - Go Over budget >$ threshold Prepare SR&ED claim Foreign O-Budget Go No Review resources available Go - resources available Go / No - Go Decision Tree Assist client to claim SR&ED ITC No-Go

SR&ED should You apply? 1) What is SR&ED? 2) Do you do it? 3) Do your competitors do it? 4) Are you eligible? 5) Is it difficult? 6) Is it worth it? 7) How do you apply? Key Questions

SR&ED should You apply? What Should You Do?  Claim all foreign funded SR&ED activities  Review all Canadian funded SR&ED activities  Offer clients a “Project Description” for their SR&ED activities

Discussion Questions / Answers Web site: