Engineering Companies and SRED

G6 has a couple engineering firms as long-time clients.  Year in, year out, these companies get substantial cheques from the feds.  Neither company has a lot of headcount, but the staff tend to be highly paid.  Almost all companies’ SRED claims are composed of mostly payroll expenses, so this is a good thing.

Years ago, I took a page out of the Sales 101 handbook and I hired a telemarketer to prospect among engineering companies in Ontario.  The telemarketer called two hundred firms.  We learned a couple things.  One, most engineering companies are not claiming SRED.  Two, I still have 2 long-time engineering customers.  What the heck.

Can I tell you an engineering joke?  I am an engineer, so I think this is fair game.  (Queen’s Mech Eng., Class of ’83.)  No Boomer jokes please, I will tell the jokes on this blog, thank you very much.  This is a sidetrack, but remember the Seinfeld episode where Jerry’s offended because the WASP dentist was telling Jewish jokes?  Anyway, the engineering joke.  “You can always tell an Engineer; you just can’t tell him much.”  Yep.

Certainly, there are engineering companies doing 100% routine work with no opportunity to claim SRED.  HVAC firms come to mind.    But there is lots of prototyping, innovation and experimental engineering work being done in Canada that is going unclaimed.  Call me!

There are a couple areas to look for qualifying SRED work in engineering firms, indeed, these tips hold true for any company performing technical project work for other firms: IT shops,  specialty service firms like 3D printers, automotive and aircraft specialty/niche manufacturers , etc.  The first area to explore for SRED is tools development.  As you carry out repetitive for customers, job in and job out, you may start to investigate ways to automate those tasks.    Your solution might take the form of software, new business processes, new widgets, or some combination of these methods.  This work is generically called tools development, and it is a highly claimable SRED field.

The second area to investigate in engineering firms for SRED candidate work is work for US and other foreign firms.  Companies performing technical work for other firms cannot claim that work as SRED if your customer is claiming your work as a subcontract expense as part of his SRED claim.  Technically, you can claim this project work, but only the expense amounts that exceed the billed amount to your customer.  Let’s take an example.  Say you are doing prototype work for an Ontario manufacturer.    That manufacturer’s SRED consultant is planning to claim your prototyping work as part of their larger SRED project.  Many large companies will put right within their purchasing contracts with you that any work or amounts carried out under this contract which may be claimed for SRED are the property of the purchaser.  If the prototyping goes poorly, you may be able to charge nominal amount to the customer for your efforts.  Any expenses you incur beyond those contract payments can be claimed as SRED by you.   The way you claim this sort of work is straightforward.  You calculate your allowable SRED expenses just like any normal SRED project.  Then you subtract the amounts you billed to the customer for the work.  The difference is your allowable SRED expense for this project.

So, here is the opportunity for engineering firms doing work for US and foreign firms.  These customers cannot claim SRED because they are not resident in Canada.  All qualifying work you perform for these foreign customers can be claimed as SRED by you.  You get paid by the customer for your work.  You get paid by the feds for the SRED part of your work with no deductions.  Yes, you read that right.

I will end with an engineering joke that does not make fun of engineers.  (Except maybe the ones who will not claim valid SRED work….)  “I can explain it to you.  But I can’t understand it for you.

Engineering companies and SRED should go together .  Call G6. We’ll work with you to uncover SR&ED opportunity in the work you are already performing