Why should a Technology business in Toronto care about SR&ED (Scientific Research & Experimental Development) Tax Credits?
Toronto based Technology companies that are involved in research & development can qualify for the tax credit program and will have access to a cash refund up for 35% on qualifying expenses. For companies in the growth phase this refund on business activities can very significant and support the growth of the venture. The Canadian government has set a mandate to invest in companies that are creating new technologies, and performing scientific research to become leaders in the world of innovation. Waterloo, ON used to be called the "Silicon Valley" of the North, however this has been turning into Toronto with organizations such as the MaRS Discovery District.
What business activities qualify for SR&ED?
In general projects that quality for SR&ED will need to prove that your business is solving a problem and creating a technological advancement.
In order to qualify for SR&ED tax credits you must meet all of the following criteria:
(a) A scientific or a technological uncertainty is present and you are trying to solve the problem.
(b) Your business has set out a clear hypothesis that is specifically reducing or eliminating that uncertainty.
(c) The company's approach to solving the uncertainty uses a systematic investigation or search, including formulating and
testing the hypotheses as a result of experiments and analysis.
(d) Achieving a scientific or a technological advancement.
Scientific or a technological uncertainty: Scientific or technological uncertainty means whether a given result or objective can be achieved or how to achieve it, is not known or determined on the basis of generally available scientific or technological knowledge or experience. This definition encompasses the definition of scientific uncertainty, technological uncertainty and technological obstacle. The only difference is that scientific uncertainty relates to science whereas technological uncertainty and technological obstacle relate to technology.
A hypothesis is an idea, consistent with known facts, that serves as a starting point for further investigation to prove or disprove that idea.
Systematic investigation or search:
The systematic investigation or search called for in the definition of SR&ED is an approach that includes defining a problem, advancing a hypothesis towards resolving that problem, planning and testing the hypothesis by experiment or analysis, and developing logical conclusions based on the results.
Scientific or a technological advancement:
Scientific or technological advancement is the generation of information or the discovery of knowledge that advances the understanding of scientific relations or technology. This definition encompasses the definition of scientific advancement, advancement of scientific knowledge and technological advancement. The only difference is that scientific advancement and advancement of scientific knowledge relate to science whereas technological advancement relates to technology.
How does the SR&ED Tax Credit work and is the return?
You will need to complete the following SR&ED tax credit filings using a T661 and file this as part of your corporate tax return for the taxation year end.
For Canadian Controlled Private Corporations (CCPCs), the investment tax credit is up to 35% on qualifying expenses and the expenditure limit is $3 Million. This means the maximum tax credit is $1,050,000.
Some common expenses that qualify include:
-Some overhead costs
-Salary and wages
Expenses that do not quality include:
-Market research or sales promotion
-Prospecting or exploring/drilling for oil, minerals, or natural gas.
-Routine date collection and other processing.
How MP Group can help?
MP Group offers contingency pricing with respect to our SR&ED services! This is a highly attractive form of pricing for organizations seeking to benefit from these financially rewarding tax incentives, but also weary of incurring expensive professional tax advisory fees in a case where their SR&ED claim with CRA proves unsuccessful.
If you believe your organization may already be undertaking SR&ED activities, or is preparing to in the near future, please contact us for more information at 416-214-0527 or visit www.mpgroupcpa.com