Here’s an SR&ED tax credit example to show the steps involved in claiming an SR&ED tax credit.
The first step is seeing whether your business might qualify for SR&ED money. Call G6 Consulting and schedule an introductory call with Greg Hills. There is no obligation to you or charge for this call. The first requirement for SRED is that you are engaged in a technical line of business. Businesses engaged primarily in retail, legal, marketing, sales, or distribution activities most likely have no ability to make a claim. The verticals that may have SRED-claimable work are broad. Software, manufacturing and process companies, start-ups, wineries, and green firms all widely claim SRED credits. There are several technical verticals where the firms in those lines of business in my experience under-claim SRED. These industries include agriculture, food production and engineering service companies.
If you are in a technical line of business, Greg will meet with you and review potential qualifying SR&ED work you have performed. Have you developed any new products, or developed enhanced features to existing products? Have you built any prototypes? Have you developed any technology to increase productivity or efficiency in your business? These types of activities are all hallmarks of SRED-claimable work.
SRED credits are claimed for work you have already performed. This makes SRED the opposite of traditional R&D funding mechanisms like IRAP, where researchers write proposals for work they will undertake if they receive funding. A big advantage of SRED is that its provisions are built right into the Income Tax Act. This means that if you meet the requirements for funding, you will receive your credits. There is no competition for available funding between firms, nor is there a pot of money that may or may not have funding after you have qualified. The amount of SRED funding available to you is unlimited.
Your ability to claim SRED credits is time limited. We must file your SRED claim within 18 months of the end of the fiscal year during which the SRED work was performed. If you think you may have a claim, do not wait until the end of June to explore your options. With a December 31st year end, you could lose a year’s worth of SRED credits if we cannot submit your completed claim before the June 30th deadline. This could be a loss to you of tens or hundreds of thousands of dollars!
Once we identify qualifying work within the proper time frame, G6 will gather details about your work and separate the work into projects by fiscal year. We build a write-up of your work which lays out how your work meets the technical requirements for sred qualifying work, all in less than 1400 words per project. One of the final steps of preparing a claim is assigning allowable payroll, material, and subcontract expenses to your project. If you want to learn more about this step, and how sred credits are calculated, read this post: https://www.g6consulting.ca/how-do-you-calculate-the-rd-tax-credit/
Next the SRED projects are transferred onto the proper CRA claiming forms, organized by fiscal year. If we are claiming SRED for a fiscal year where you have already filed your business taxes, G6 will file the SRED claim as an amendment to your previously filed taxes. Ideally, and certainly for future claims, G6 will co-ordinate with your accountant so that the SRED is filed as part of your annual T2 filing.
For first time claimants, the government schedules a review at your site, typically a month or two after your claim is submitted. The government sends a technical and financial reviewer to learn about your business, educate you about sred and review your claim to ensure it meets sred standards. G6 is with you during this review, which typically takes a half day to a day to complete. Ideally your first claim is assigned FTCAS status, where the above review takes place, but it is less in depth because your claim has already been pre-approved prior to the review. For more detail on FTCAS and its importance, see this case study.
After a successful review, your SRED credits will be direct deposited into your business bank account within about a month. At that time, G6 will bill you a contingency fee based on a percentage of the cash you received.
Many companies who get SRED money successfully from the government find that they are doing qualifying work annually. G6 works with you to make documenting your SRED activities part of your regular workflow. You will file SRED annually as part of your T2 tax return. Processing times for repeat filers are often accelerated with turnaround times of a few weeks rather than months as in the above example. G6 will now work with you to strategize how SRED can be a key component in funding your business success and growth by incenting you to expand your technological expertise and undertake groundbreaking projects.
Check out our SR&ED case studies for another SR&ED tax credit example. Or this post for a software SR&ED tax credit example.