Should you care about SR&ED?

SR&ED (Scientific Research & Experimental Development) is a tax credit program provided by the Canadian Government to help companies improve their competitive position. In a recent discussion with a SR&ED consultant, I found that many of the activities that a company undertakes may qualify for a tax credit. This can help a company to justify their expenditures on advancement.

Information Technology is a necessity for any company to survive today. Since technology is constantly changing, keeping up with technology and increasing the return on investment is also a necessity. This is more than a technologists view, but one of a company improving or maintaining its competitive position.

Most people probably think of SR&ED in terms of research and development projects, but the Income Tax Act defines it more broadly. There is a structured approach to the requirements and sometimes it can be difficult to go back and justify expenditures as SR&ED eligible.

There are three criteria for eligibility:

1. The project must be undertaken in a systematic manner, following a scientific method and be carried out by qualified personnel.
2. The business must face a technological uncertainty with regards to the project.
3. The business conducting the project must seek to advance its technology, even if the advancement may be only incremental.

When I take on an assignment, the company that I work with has normally failed to successfully implement software to upgrade their business performance, which was their goal. On the face of it, they possibly have qualified for criteria 2 &3 above. They obviously faced technological uncertainty, because they failed. They were attempting to advance their technology as they were implementing new software to upgrade business performance. The only criteria that they may not have met is the first one. Was the project undertaken in a systematic manner, following a scientific method and carried out by qualified personnel?

In my experience, these projects did not follow criteria 1. They didn't get qualified personnel to help them because they didn't want to spend the money. They often fail to get the value or business outcomes that they sought because they didn't have the skills. The SR&ED program may be an opportunity to provide a win-win. Since expenses on an a project that follows a systematic method are eligible, the business may hire skilled consultants to help them and get some of those costs back in a tax credit, their success and profitability are improved.

Can a business afford not to invest in getting help to improve their business performance? This is only a preliminary view of the potential for a business to gain twice from SR&ED. As I learn more about the opportunity, I'll provide an update.