How to claim SR&ED tax credits

Tax time can be exciting when your business has a tax credit and receives a refund, or it can be a nerve-wracking experience if you get audited. If you are a business that has invested in scientific research and experimental development, then you will be excited to claim the tax credit for SR&ED projects. This article shows you how to file the claim and at the same time be prepared for an eventual audit.

The application process is thorough. You will need to supply the CRA with forms and supporting documentation. The primary form is a T661 followed by form T2SCH31 (for corporations) or T2038 (for individuals). There are also provincial tax credit forms you need to file, depending on where your work was done. On the forms, you will fill out your relevant expenses to submit to the Canadian Government. Further, for each unique project, you will need to submit a word-limited project description, clarifying the Technological Uncertainties, Work done as experiments, and Technological Advancements you made.

There are two methods that are used for figuring out what you will claim. The traditional method, which is basically an itemized list of all overhead and expenses related to your R&D project, or the proxy method. The proxy method uses a percentage gross-up representing overhead, based on your Salary expenses only. This method is simplest, because overhead for SR&ED projects is generally hard to track and document for most taxpayers.

Be sure to remember that corporations have 18 months from the end of the fiscal year to file for non-current year claims. This means that if you have never filed before, you can claim expenses for the fiscal year ending 18 months prior to the current filing deadline. However, if you have filed before, you have 6 months from the end of the fiscal year to file to stay current and not pay penalties if taxes are owed. 

Required supporting documentation in the SR&ED program

You are not required to file supporting documents with the prescribed forms, but you should keep all documentation organized and available to prepare in case the CRA wants to review your application.
Generally, you should keep all documentation for qualifying expenditures related to the SR&ED work. It is good practice to date and sign any documents created during the project. This includes, but is not limited to: 
  • Ledgers
  • Project plans and time sheets
  • Meeting minutes
  • Project progress reports
  • Prototypes or samples
  • Contracts
  • Purchase invoices
  • Etc. 

This is not an exhaustive list but we wanted to give you an example of what would work as supporting documentation. 

Submitting your claim to CRA

Your claim is filed as part of your corporate income tax return each year. Your accountant needs to ensure that the relevant project and expense information is used on the tax return. The claim must be filed within 6 months of your fiscal year-end otherwise you will incur a penalty. 

There is an 18-month deadline for non-current year claims. This means that if you are a first-time claimant, you can go back to the start of the previous fiscal year to identify eligible SR&ED expenditures. So for example if your prior fiscal year-end is December 31, 2019, you have until the deadline of June 30, 2020, to capture SR&ED expenses going back as far as January 1st, 2019.

At Conceptinero we work closely with our clients and their accountants to make sure that all project information is submitted correctly and in a timely manner, so you and your accountant aren’t burdened with the process. Get in touch with us if you have any questions.

About Conceptinero

We are a full-service professional SR&ED Consulting Firm specialized in the Medical Science, Software and Manufacturing industries. We have a 95% success rate in getting CRA to refund up to 65% of your research and development costs.

We engage with you to assess the technical and financial viability and make sure your claim gets approved by CRA without an audit. We have submitted $50M in claims to the CRA. Over 320 claims were accepted as filed, for an average $146,000 per company.

Unlike larger SR&ED consulting firms, we offer full service from an individual consultant who gets to know your team and fully manages your CRA claim. We don’t expect you to do the heavy lifting, which means maximum results with minimal input from your team so you can focus on your business.

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