G6 Consulting Inc Canada's R&D Tax Credit Experts
CRA Highlights 11 Model SRED Companies
On October 18th 2021 the Canada Revenue Agency (CRA) published a press release that, among other things, reaffirmed their commitment to the SR&ED program – particularly for small businesses. The Scientific Research and Experimental Development (SR&ED) program supports research and development in Canada. The program provides more than $3 Billion in funding to over 20 000 companies in Canada each year. You can read more about SR&ED here – What is SR&ED? SRED Credits
In their press release, the CRA discusses the latest developments in the SRED program including the latest transformation of the Guidelines on the Eligibility of Work for SR&ED Tax Incentives (we have a piece that breaks this down in plain English here: SR&ED Eligibility).
The most interesting and noteworthy item in the press release, however, is a link to a page entitled Scientific, Research and Experimental Development – Success Stories. This is a hidden page on the Canada.ca website, it is hard to find and was not included on the government’s regularly updated What’s New in SR&ED page. The reason for the page’s lack of visibility is unknown, but presumably it is because quasi case-studies like this are a rare thing for the CRA to publish. Not only is it a privacy concern, revealing individual companies’ involvement in a tax incentive program, but through these 12 examples of what the CRA evidently considers “model SR&ED”, observers can get glimpse into what the CRA considers ideal SRED candidates.
Let’s break down each of the 11 relevant case studies and see what findings we can uncover about the inner workings of the SR&ED program.
*Before we dive into the weeds, we want to make it clear we are reading into PR content from the CRA and assuming that it correlates to what is going on behind the scenes. Whether this is true or not is unknown. What we know is that the people from the CRA that review SR&ED claims are likely not the ones who assembled these case studies. However, we can also assume that, in an organization such as the CRA, more than surface-level thought went into the case study examples and commentary used. *
Model SR&ED Case Study 1 - cStar Technologies Inc.
Key Excerpt From the CRA:
“cStar Technologies Inc. specializes in two-way wireless data communication solutions for machine-to-machine, machine-to-mobile, machine-to-human, and mobile-commerce applications… (SR&ED) has allowed cStar to conduct a series of experiments that led to the invention of wireless communication solutions for their clients. The company has developed domestic and internationally-patented technologies and has created quality jobs in Canada.”
Key Takeaways:
- Wireless communications is a favorable industry for SR&ED in the CRA’s point of view, evidenced by the decision to highlight this company
- Patented technology may be a factor that elevates your SR&ED claim for the CRA.
- Job creation is highlighted as the goal of the SRED program. This could mean, as G6 Consulting has previously observed, that the payroll part of your SR&ED claim is the most important. Companies that claim materials and/or subcontractors for SRED only may be more closely scrutinized.
- Small companies (under 25 employees) such as cStar may be advantaged for SR&ED from the point of view of the CRA, evidenced by the first case study highlighting such a company.
Model SR&ED Case Study 2 – AmacaThera
Key Excerpt From the CRA:
“AmacaThera is a Toronto-based biotechnology company that develops and commercializes products for a wide range of medical applications… AmacaThera’s new technology is designed to decrease a patient’s need for opioids after surgery and has been approved recently by Health Canada for phase 1 clinical trials”
Key Takeaways:
- Medical biotechnology is likely a target industry for SR&ED
- Connection to other government organizations such as Health Canada may elevate your SR&ED claim.
- Connection to an education institution such as University of Toronto may elevate your SR&ED claim. (AmacaThera has a close connection to UofT, being a spinoff from Molly Shoichet’s laboratory. This is highlighted in a separate press release.)
- Start-ups, especially start-ups with VC involvement, may have their SR&ED claims looked at more favorably, shown by the decision by the CRA to highlight AmacaThera.
Model SR&ED Case Study 3 – Wilder Harrier
Key Excerpt From the CRA:
“Founded in 2014, Wilder Harrier is a Montréal-based company that specializes in producing pet food using protein derived from alternative sources… The Scientific Research and Experimental Development (SR&ED) tax incentives helped Wilder Harrier contribute to sustainability efforts in Canada. By choosing innovative and environmentally responsible ingredients, such as insect protein or fruit and vegetable pulp recovered from the circular economy, the company provides Canadians with sustainable and environmentally friendly pet food options.”
Key Takeaways:
- Food development is a target industry for SR&ED
- Sustainability or “environmental good” may be a factor that elevates your SR&ED
Model SR&ED Case Study 4 – Hydrogen in Motion Inc.
Key Excerpt From the CRA:
“This clean tech company proposes hydrogen energy and storage solutions for the clean energy sector with the goal of improving environmental sustainability. The company’s R&D work has contributed towards Canada’s environmental efforts by developing innovative hydrogen storage technologies that, coupled with a hydrogen fuel cell, produce clean energy. H2M technology, alongside of the expertise and products of other Canadian companies, have a combined hydrogen energy system that can power a wide range of products from vehicles, trains and drones to buildings and mining equipment.”
Key Takeaways:
- Alternative energy is likely a target industry for SR&ED
- More evidence suggests that “environmental good” and sustainability “in line with Canada’s environmental efforts” will elevate your SR&ED
- More evidence suggests that small companies are targeted for SR&ED, Hydrogen in Motion Inc has under 25 employees, as do all case studies so far.
Model SR&ED Case Study 5 – Turkana
Key Excerpt From the CRA:
“Inaugurated in 2013, Calgary based Turkana Inc. is an analytic and data services company. Using imaging technology, Turkana provides its services to a variety of companies in the defence, manufacturing, medical and oil and gas industries. (SR&ED) is helping the company continue its research and development (R&D) work and grow its activities. It enabled the company to hire more employees to pursue software development and expand its leadership in geothermal imaging exploration. With its commitment to quality, Turkana Inc.’s R&D work brings valuable environmental benefits to Canada. It is developing environmentally friendly technologies that process wastewater, decrease seismicity and reduce greenhouse gases.”
Key Takeaways:
- Imaging technology is a target industry for SR&ED
- Software development is a target industry for SR&ED
- More evidence points to the goal of SR&ED to be both job creation and to assist the government’s efforts of environmental sustainability
- Leadership in an industry may be a factor that elevates your SR&ED
Model SR&ED Case Study 6 – Motion Metrics International Corp.
Key Excerpt From the CRA:
"Motion Metrics International… offers a variety of high-tech products aimed at improving the productivity, safety, and environmental impact of the mining operations around the globe. By combining the latest in machine learning and computer vision technologies, Motion Metrics International Corp. has become a trusted ally in mines around the world and in Canada. It is helping the global mining industry to be more efficient, safe, responsible, and profitable. Funding from the Scientific Research and Experimental Development (SR&ED) Program provided the company with the support it needed to grow and succeed by leveraging innovative technologies. The program’s financial backing enabled Motion Metrics International Corp. to move forward with its SR&ED planning and its future research and development (R&D) work."
Key Takeaways:
- While Motion Metrics is the largest company so far it is still a CCPC with under 250 employees. The CRA has yet to highlight a large company
- Machine learning is a target industry for SR&ED
- Computer vision is a target industry for SR&ED
Model SR&ED Case Study 7 – Pattison Sign Group
Key Excerpt From the CRA:
"Pattison Sign Group creates signage solutions for businesses across Canada. The scientific research and experimental development (SR&ED) tax incentives have been of benefit to the company’s rise to becoming Canada’s top sign manufacturer… At the end of an audit review done by the Canada Revenue Agency, SR&ED employees tried to minimize any burdens related to compliance for the taxpayer."
Key Takeaways:
- Pattison sign group is the first large company highlighted by the CRA, and unlike other companies where it is mentioned that audit was avoided with the FTCAS program, Pattison was audited. This seems to again show that smaller companies are favorably treated in the SR&ED program.
- Looking at their website, https://pattisonsign.com/, the only SR&ED field appears to be development of LED lighting technology to light up signs. This is the first example where technology was not mentioned by the CRA.
- This example is an outlier from the previous 6 case studies.
Model SR&ED Case Study 8 – Autovance Technologies
Key Excerpt From the CRA:
“Autovance Technologies is a software and technology firm that specializes in creating web-based sales tools such as vehicle pricing and data management systems…. When Autovance Technologies filed their first scientific research and experimental development (SR&ED) claim, they were selected for the free in-person First-time claimant advisory service (FTCAS)…. Today, Autovance Technologies has become a leader in its field and, with the services it provides, is helping other businesses grow in the Canadian automotive industry.”
Key Takeaways:
- Software development is again mentioned as a target industry for SR&ED
- Leadership in an industry is referenced again, increasing the likelihood that this is a factor that strengthens SR&ED
- Autovance is another small company (under 25 employees) that was pre-approved under FTCAS.
Model SR&ED Case Study 9 – Rio Tinto
Key Excerpt From the CRA:
“Rio Tinto is a world leader in mining and metals with 47,500 people working in around 35 countries across six continents… SR&ED project to decouple the production of titanium concentrate from that of iron. This project improved the efficiency and sustainability of RTFT’s mining and smelting activities. At the initial stages of the SR&ED testing, RTFT consulted with the SR&ED Program to determine the eligibility of the project and its related expenses, especially regarding the large-scale trials. The services and tools offered by the program allowed for RTFT to self-assess the eligibility of their work and improve predictability. The SR&ED tax incentives helped RTFT remain competitive and support the employment of professionals across Canada.”
Key Takeaways:
- Rio Tinto is the largest company highlighted so far as a multi-billion-dollar international corporation
- Minerals and Mining is a target industry for SR&ED (Resource exploration is a barred SRED activity, but clearly, ancillary support activities and downstream resource processing can be model SR&ED)
Model SR&ED Case Study 10 – Northforge Innovations Inc.
Key Excerpt From the CRA:
“The company develops software solutions to improve cybersecurity, as well as to facilitate the high-speed transmission of video, voice, and data. The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program has provided important financial support to the work of Northforge Innovations Inc. Over the years, the program has enabled Northforge to increase its employee base and revenue. These employees are doing research into complex technologies, which supports Canada's initiatives to become a leading innovation centre in the world.”
Key Takeaways:
- Cybersecurity is a target industry for SR&ED
- More evidence presented of both the aim of SR&ED to incent job creation and the emphasis SR&ED may be placing on technology and industry leadership.
Model SR&ED Case Study 11– Canadian Geothermal Energy Association - Non-Profit SR&ED Corporations
Not a case study like the other 11 SR&ED examples, the CRA seems to be reminding us of the benefits of Non-Profit SR&ED Corporations and Third-Party Payments. We have a blog post coming soon detailing this process. Follow us on LinkedIn to stay up to date for the latest on SR&ED.
Model SR&ED Case Study 12 – Rho-Can Machine and Tool Company
Key Excerpt From the CRA:
“Rho-Can Machine and Tool Company was established in 1983 and serves the military, automotive, and aerospace industries. It specializes in designing and building special-purpose machines and equipment while providing machine-shop services and manufacturing.”
Key Takeaways:
- Specialized manufacturing is a target industry for SR&ED
Conclusion – Summary of Findings
Such a collection of case studies is an uncharacteristic move from the Canada Revenue Agency. Keeping in mind our disclaimer regarding reading too much into these examples, we can assume that the case studies and descriptions are intentional, and not mere PR speak. If that is the case, here are things we may take away about the SR&ED program:
The following industries are excellent industries from which to claim SR&ED:
- Wireless communications
- Medical biotechnology
- Food development
- Energy, particularly alternative Energy
- Imaging Technology
- Software Development
- Machine Learning
- Computer Vision
- Lighting technology
- Technology in Minerals and Mining
- Cybersecurity
- Specialized Manufacturing
The following factors may elevate a SR&ED claim in the eyes of the CRA:
- Patents
- Job creation
- Small companies under 25 employees
- Connection to other government bodies and educational institutions
- Start-ups with VC involvement
- Sustainability and “environmental good”
- Technology/Industry leadership
G6 Consulting Inc has over 12 years of experience specializing in the SR&ED program. SR&ED experts such as G6 often work on a contingency basis, with payment only based on a percentage of SRED credits once received. You can contact G6 for a free consultation here. https://www.g6consulting.ca/contact/
G6 Consulting Inc works with hundreds of companies in Canada with real “model SR&ED”. One such company is Trexo Robotics. You can learn about the story of this fast growing technology company here. You can also watch a Ted Talk by founder Manmeet Maggu below.