1	Scientific Research & Experimental Development (SR&ED) Program Fostering Canadian Technological Advancement
2	PROGRAM OVERVIEW Program has been available since 1985 Canada’s major SR&ED incentive program Encourages and fosters performance of SR&ED in Canada Used by over 11,000 companies annually Provides ~ $1.5 billion/year in tax credits
3	INTRODUCTION Program designed to help industry Applies to business of all sizes Supports virtually every industry Simple rules Help available
4	BENEFITS OF THE PROGRAM SR&ED expenses deductible from income Fast write-off of capital items Investment Tax Credit (ITC) of 35% or 20% which can: Offset Federal Taxes otherwise payable Offer cash refunds Claimant has 18 months from the company’s year end to submit claim
5	TOPICS OF DISCUSSION
6	CCRA’S DEFINITION OF SR&ED “Scientific Research and Experimental Development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is As per section 248(1) of the Income Tax Act
7	TYPES OF SR&ED a) Basic Research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view - Subsection 248(1)(a) b) Applied Research, namely work undertaken for the advancement of scientific knowledge with a specific practical application in view - Subsection 248(1)(b), or c) Experimental Development, namely work undertaken for the purpose of achieving technological advancement for the purpose of creating new or improving existing materials, devices, products, or processes, including incremental improvements thereto - Subsection 248(1)(c), and,
8	SUPPORT ACTIVITIES applying this definition in respect of a taxpayer (claimant) includes d) Work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs and directly in support of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the tax payer, Subsection 248(1)(d)
9	EXCLUDED WORK But does not include work with respect to e) market research or sales promotion, f) quality control or routine testing of materials, devices, products or processes, g) research in the social sciences or the humanities, h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas, i) the commercial production of a new or improved material, device or product or the commercial use of a new or improved process, j) style changes, or k) routine data collection; (Subsection 248(1)(e-k))
10	ELIGIBILITY RULES Eligible Work: Three Criteria exist Eligible expenditures Work only in Canada
11	THREE ELIGIBILITY CRITERIA Scientific or Technological Advancement Work must generate information that advances the understanding of scientific relations or technologies - IC86-4R3(2.10.1)Page 4 Scientific or Technological Uncertainty Whether a given result or objective can be achieved, or how to achieve it, is unknown or cannot be determined based on generally available scientific or technological knowledge or experience IC86-4R3(2.10.2)Page 4 Scientific and Technical Content There must be evidence that qualified personnel with relevant experience in science, technology, or engineering have conducted a systematic investigation through experiment or analysis - IC86-4R3(2.10.3)Page 5
12	WORK MEETING ELIGIBILITY CRITERIA
13	SR&ED CONTRIBUTORS
14	CLAIM REVIEW PROCESS Technical and Financial aspects Science Advisors and Outside Consultants Financial Reviewers Supporting documentation and physical evidence for work done and costs incurred (IC86-4R3(3.1)Page 6)
15	MAKING A CLAIM Complete and submit T661 Form Attach project technical descriptions and individual project cost summaries Guidelines are available on how to write project descriptions For help, please do not hesitate to call
16	METHODS OF REPORTING EXPENDITURES Traditional Method Proxy Method
17	TRADITIONAL METHOD Qualified Expenditures include: Amounts that are directly attributable to SR&ED (e.g. labour, material, contracts, etc.) Capital expenditures used all or substantially all in SR&ED (90%) Overhead costs incurred due to SR&ED: Directly related to and Incremental
18	PROXY METHOD Qualified Expenditures include: Directly engaged salary or wages Materials consumed, or transformed Contract payments Lease costs Third party payments Capital used all or substantially all in SR&ED Proxy amount equal to 65% of SR&ED wages
19	“Directly Engaged in SR&ED” Directly engaged means carrying out tasks such as following: Preparing equipment and materials for experiments, tests, analysis, but not for maintaining equipment; Experimenting, testing, and analyzing; Collecting data for experimentation and analysis, And directing the course of the ongoing SR&ED work being claimed in the year. Additional tasks my be required as part of SR&ED including: Recording measurements, making calculations, and preparing charts and graphs; Preparing computer programs; Working in the areas of engineering or design, operation, research, mathematical analysis, computer programming, data collection, testing or psychological research.
20	“Directly Engaged in SR&ED” (cont) Employees providing a service to SR&ED staff including clerks, secretaries, engaged in areas such as accounting, payroll etc. are not considered to be directly engaged. Time spent by supervisors or managers is considered directly engaged when involved in the technical aspects of the ongoing SR&ED work. Time spent by managers and supervisors on the non-technical management aspects of work, such as long term strategic planning, contract administration, and other decision making functions, that do not directly influence ongoing SR&ED work, is not considered directly engaged. Work performed beyond the first line supervision level is not considered normally as directly engaged.
21	PRESCRIBED EXPENDITURES – Not eligible Administration salaries Legal or accounting fees Interest and other like fees Entertainment, convention, adverting or selling expenses Membership dues or fees Fines or penalties Cost of used equipment
22	OTHER ISSUES Percentage of ITC’s earned – 35% or 20% Government assistance Non-arm’s length transactions Unpaid amounts Shared use equipment
23	SUPPORTING FINANCIAL DOCUMENTATION Reconciliation of accounting records to T661 amounts Rationale for cost allocations by project Invoices for all SR&ED purchases Contracts Time sheets and records for salaries and wages claimed
24	“Coming together is a beginning. Keeping together is progress. Working together is success.” Henry Ford