What is SR&ED and how do I get it?

SR&ED is a Canadian government program to help corporations, SMEs & startups get cash for tech development and scientific research.

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SR&ED In Brief

The Scientific Research and Experimental Development (SR&ED) program is a Canadian federal government program aimed at encouraging corporations, SMEs, partnerships and individuals to invest in experimental development and scientific research.

You can claim up to 35% of your spend on qualified scientific and experimental development costs in the form of cash or an investment tax credit. You can get 35% back in cash, up to a maximum of C$3 million of SR&ED expenditure. Anything above this C$3 million threshold can be claimed at a 15% rate which is non-refundable and used to offset against future tax.

F6S Canada SR&ED
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SR&ED is a strict program - the CRA is likely to look carefully at your claim and has a relatively high audit rate. We want you to get your money back in a smooth process. Please make sure you fully understand the program’s requirements before you submit. This SR&ED guide will walk through the steps and please do reach out if we can give you a free consult or advice.

We’ll talk mostly about startups and companies in this guide because most of our clients at F6S are CCPCs and corporations.

Ask for help in our SR&ED Discussion Group

F6S can help with your SR&ED claim

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What is considered SR&ED that I can claim on?

The official definition of SR&ED is a systematic investigation or search which is to be carried out in the field of either science or technology. You can see it in all its legal glory in the Canadian Income Tax Act, subsection 248(1). We expect you’re asking, ‘So what does that actually mean?

Your startup or company is carrying out SR&ED eligible research and development if you are:

Please don’t rule out SR&ED if you’re not curing cancer or probing at the fabric of our universe! We can and do successfully get SR&ED claims for startups in software, AI/ML, blockchain, social, media, fintech and many other areas of tech.

Once our team of SR&ED experts have confirmed for you that we think you qualify, there are many areas you can get money for your spending. We’re happy to give you advice in a free consultation if helpful. Spending areas that often qualify to get money back for you include:

So what can’t you get money back on through SR&ED? According to the CRA’s eligibility guide, you can’t claim for:


Ask for help in our SR&ED Discussion Group

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So is my startup or company doing SR&ED that I can money back on?

Remember the five questions we promised you at the top of the guide? These five questions can give you a steer on whether you have a SR&ED claim that the CRA is likely to approve.

You have to be able to answer ‘Yes’ to each question. Some of the questions might seem obvious, but a successful SR&ED claim rests on fully supporting that what you are doing ticks all five questions’ boxes. We’re here to give you free advice if you’re not sure or want to confirm your eligibility.

  1. UNCERTAINTY: Has your startup or company encountered a technological or scientific uncertainty in the course of development?
  1. HYPOTHESES: Did you try out different hypotheses in order to circumvent, reduce or eliminate the uncertainty?
  1. TESTING: Was your approach consistent with a systematic search and investigation? For example, did you test your hypotheses and/or formulate new hypotheses using analysis, experimentation or a combination?
  1. ADVANCEMENT: Was your approach aimed at a technological or scientific advancement?
  1. KEEP RECORDS: Did you keep a record of your work in progress, the results, and how you tested your hypotheses?

A ‘Yes’ to all five questions means that your company is likely to be eligible for a cash refund (if you’re losing money) or a deduction of SR&ED expenditures from your startup’s tax bill (if you’re profitable).

There’s a lot more work to do though. You now have to explain your activity in detailed writing to the CRA, find all the costs that are eligible (and avoid ineligible costs!), complete the financial calculation and, if audited by the CRA, defend your claim. Once you’ve done all this and submitted to the CRA, claims take an average of eight weeks to review your filing and determine eligibility. It can take twenty four weeks or more for claims the CRA wants to look at in more detail. Many of F6S’ startup founder clients count on SR&ED funds as a key source of cash to run their startup or company. We strongly recommend you are 100% certain you’re eligible and have prepared your claim correctly before it goes to the CRA. We’re happy to advise on eligibility and any other questions you might have.

Who is eligible for SR&ED in Canada

Your startup or company’s claim can be passed to the Coordinating Tax Services Office (CTSO) if it’s flagged for review. The CTSO can also send your claim to financial and technical advisors for evaluation. The CRA and CTSO take these reviews seriously so it’s important to make sure that your claim describes your activity correctly and makes a water-tight argument for eligibility.

It can be hard to re-establish credibility if your initial claim doesn’t present what you’re doing correctly. It’s common for incomplete or poorly prepared claims to be sent back to you with requests for more information or with questions for you to answer. F6S takes care of these queries (with your help;) as part of our service to F6S clients that we help with SR&ED.


F6S can help with your SR&ED claim

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Step-by-Step: How Do I Get SR&ED Cash for My Tech Spend?

1.How much can I get?

The amount of money your startup or company gets for technical spend varies based on what kind of organization you spend the money through. The CRA provides one level of SR&ED refund to Canadian-controlled Private Corporations (CCPCs), and a lower level to other private corporations, individuals (proprietorships) and trusts. Sorry partnerships, but you are specifically excluded from eligibility for SR&ED.

Federal SR&ED can refund up to 35% of a CPC’s qualifying spend. The refund to the CCPC is called an Investment Tax Credit (ITC). We’re only looking at federal Canadian SR&ED in this guide, but most Canadian provinces have their own SR&ED schemes. We can advise you on what’s best in a free consult once we know where you are in Canada.

Are you something other than a CCPC? All non-CCPC applications for SR&ED get ITC at 15% - only for qualifying SR&ED spend of course. Even more importantly the ITC can only be used to reduce your tax bill. You can’t get money back if you’re not a CPCC and are losing money. This includes individuals, trusts and the other entity types we laid out above.

As mentioned above, partnerships can’t claim SR&ED even if the activity would otherwise be eligible because a partnership is not legally considered a taxpayer. The ITC for a partnership is given to the individual members (individuals, corporations, or trusts).

2. How do I go about claiming SR&ED?

First, make sure what your startup or company is doing qualifies, in the CRA’s definition of research and development. Reach out to us for a free consult or check out the other sections of the guide if you’re not sure yet.

Then make sure you have all of your documentation together. Your claim will take a while for the CRA to process so please make sure it’s correct going in. F6S can help you understand what kind of documentation you’ll need.

Next, find all of the expenditures you can claim to get money back for your SR&ED activity. There is some complexity in this, but in general you may be able to get money back for these SR&ED related costs incurred within Canada:

You can start preparing your claim when you have all of the above information on what you’ve spent correctly categorized and supported.

You’re now ready to start preparing the SR&ED program technical description of your research and development, financials, calculate your SR&ED eligible expenditures and other information for your projects. The SR&ED program rules require you to submit the SR&ED Expenditures Claims form (form T661), which outlines your SR&ED expenditure and technical description of your research and development. This is submitted along with the income tax return for your startup or company through form T2SCH3. If you’re an individual it’s through form T2038(IND).

There’s nothing more frustrating to us than finding a startup founder or company that has SR&ED eligible spend outside their claim period - meaning they lose the ability to get money back. Corporations can claim expenses made within eighteen months of the end of the tax year in which you spent the money. Individuals can claim within seventeen and a half months of the end of the relevant tax year.

You should be ready to submit (and may be asked to submit) additional support in addition to the T661, T2SCH3 and/or T2038(IND) forms. Some financial and technical documents you may be required to have at hand are:

The CRA generally takes five weeks to process and verify your claims after submission, but processing times can be much longer. As we’ve mentioned, the CRA may ask you for more information or send you questions for multiple reasons, including missing documentation or inadequate responses to justify your claim. We can assist our clients to get the CRA what it needs to continue towards approval. Even better, we want to work to avoid these issues entirely by helping you make a strong submission in the first place.

3. How does the CRA review my SR&ED claim?

The CRA will review your claim for compliance with all of the rules around the SR&ED program. It is also likely to conduct checks to make sure the costs you are claiming are legitimate. If satisfied, the CRA will approve your claim and either issue a payment (if you’re loss making) or a credit against your taxes (if profitable). The CRA can also decide that it wants to question the information you’ve provided, that your claim is incomplete, or that it just wants to spend more time reading your technical description and other aspects.

When this happens, your claim is forwarded to the CTSO. The CTSO’s technical and financial specialists will then go through your claim to run the numbers or investigate whether your research and development activities are inline with the SR&ED guidelines. We mentioned that it’s important to be 100% sure you’ve described how your project(s) complies with the CRA’s definition of eligible activities - this is where that work pays off again. The same is true for making sure you’ve claimed as much as you can, but no more. The financial reviewer will be determining if the expenses you’ve claimed are allowable as per the SR&ED guidelines.

You’ll get a Notice of Assessment at the end of any review with a decision. Your claim may be either invalidated or approved at that point. If the claim is invalidated you have 90 days from the date on the Notice of Assessment to file an objection and argue why you feel your SR&ED is valid.

We make sure for our clients that processing times are as short as possible and that your claim moves smoothly by getting your initial submission right. The right time to make sure you answer the 5 Q’s of SR&ED correctly, claim all of your eligible expenditures and provide correct support is before you submit, rather than after your claim has been sent to the CRA.

Ask for help in our SR&ED Discussion Group

Wrap-up

What’s SR&ED in a single word? It would have to be awesome. The Canadian government will actually refund you money you’ve spent on coders, tech and trials so you can do….more coding, tech and trials! It’s the best source of non-dilutive capital anywhere and gives Canadian startups, companies, CCPCs and others lots more fuel to grow.

We love helping our thousands of startup and company clients get tens of millions of dollars back for their tech spend.

So what’s the downside? When the CRA gives you money they want to make sure you qualify to receive it. They want you to prove that you deserve the refund. You need to follow their process to the letter and make sure you make a strong argument backed up by the type of evidence they want. They have a very specific definition of what types of activities they’ll refund so do your homework before you start. We can help you get started with a free consultation.

Keep the 5 Q’s of SR&ED in mind and always remember that the best approach to minimize the chances of your claim getting rejected is to front-load the process. F6S is ready to advise and if you’d like, to help out.

F6S can help with your SR&ED claim

By providing this personal information, you confirm you agree to us using it to provide our services and to keep in touch regarding information we think may interest you. You also confirm agreement to the Terms of Service and Privacy Policy. You can change your mind about receiving information from us as set out in our policies.

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