“Are You Missing Out? The Scientific Research and Experimental Development Tax Credit Program Covers More Than You Might Think” MNP

Sep 12, 2011 | Corporate Member News

Many businesses develop innovative ways to overcome everyday problems, but did you know that some of your solutions could qualify as research and development (R&D) and be eligible for up to 48% in federal and provincial tax credits in which a significant portion are refundable for small businesses?

The Scientific Research and Experimental Development (SR&ED) Tax Credit Program provides cash incentives to Canadian businesses of all sizes and in all sectors to conduct R&D that leads to new or improved products or processes. For many people, R&D conjures up images of scientists in lab coats – but the SR&ED program applies to a great deal more.

What qualifies as R&D?

Put simply, the goal of the SR&ED program is to encourage businesses to “build a better mouse-trap.” This could mean developing a new process; improving an existing process to make it faster, more efficient, precise, economical or environmentally friendly; or creating or enhancing a product by resolving a technical challenge common to your industry.

To give you some practical examples, here are a few businesses MNP has recently assisted with SR&ED claims:

  • An equipment manufacturer developing new data collection equipment and software for the forest industry.
  • A custom parts manufacturer who automated part of his production process so it could run unattended at night.
  • A software company building a new game engine for internet-based video games.
  • A food processor developing new product formulation, ingredient and manufacturing process specifications.
  • A manufacturer who developed a new product to enhance the protection of vehicles in a collision.

How much is it worth?

While tax credit rates differ based on the size of your business, the potential savings can be significant. In Manitoba claimants can receive up to 79% of qualifying wages – in tax credits. For small businesses with less than $500,000 in net income, the general rate for other eligible expenditures is 48%. Eligible expenditures can include labour, materials, equipment, contractors and overhead.

Again, it helps to consider some tangible examples:

  • A small nutri-ceutical company with 15 employees received $397,000 in cash for changes to their core products and processes over a two-year period.
  • A software implementation specialist (8 staff) received $138,000 in cash for work on its proprietary API (application program interface), allowing it to better integrate high end accounting and ERP systems.

How do you make a claim?

The SR&ED program is delivered through the Income Tax Act and administered by the Canada Revenue Agency (CRA). To successfully navigate the process, you will likely need a financial and technical specialist to help you file a claim. However, the first step is to determine whether or not your business innovation is eligible.

MNP has dedicated specialists who understand the technical eligibility and will help you file the claim. Many engagements are on a contingency fee, so there’s no direct cost (other than your time) to discuss your eligibility and what’s involved with making a claim.

Final thoughts  

The potential savings through SR&ED tax credits can have a measurable impact on your bottom line. If you think you might be eligible, it’s well worth investigating.

Ed Bergen, CGA is a Senior SR&ED Financial Specialist and Jason Boblinski, P. Eng, is a SR&ED Technical Specialist with MNP. They travel around Manitoba on a regular basis to help businesses identify SR&ED opportunities and maximize the value of their claims. For more information, contact Ed or Jason at 1.877.500.0795 or go to www.mnptax.ca/services/scientific-research-experimental-development-services.

About MNP

MNP is one of the largest chartered accountancy and consulting firms in Canada, providing client-focused assurance, taxation and business advice. National in scope and local in focus, MNP has proudly served individuals, public and private companies for more than 65 years. Through the development of strong relationships, MNP provides organizations with personalized strategies and a local perspective to help clients succeed. For more information, visit www.mnp.ca and www.mnpcorporatefinance.ca

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