It’s hard out there for businesses seeking to try new technologies – while the rewards can be huge, there’s always the risk of failure. But businesses press on anyway, researching ways to improve technology in hopes the work will be worth the investment.
If that sounds like your business, the Canada Revenue Agency (CRA) might be able to give you some help – while the department can’t do your research for you, it can provide some financial relief with the Scientific Research and Experimental Development (SRED) tax credit. That’s a type of funding designed to stimulate R&D in uncharted areas, and in 2013, the CRA provided about $3.4 billion in assistance to 22,000 tax claimants under this program.
On Thursday, CRA staff presented some tips on how tech companies can apply for SRED during an event organized by the CIO Association of Canada, held at the Microsoft Canada office in Mississauga, Ont.
While most of the basic eligibility requirements for SRED are available on the CRA website, here’s a roundup of three tips for businesses seeking to make their IT research count – and to get some financial help to go with it.
1) Figure out how your work fits into SRED’s requirements for IT.
It might seem as though SRED is geared towards massive tech companies only, ones that are undertaking vast amounts of research in their labs – however, that’s just not the case, said Hélène Marquis, director of the science and technology division of the CRA’s SRED directorate.
“[SRED’s definition] is a one-size-fits-all definition. It applies to Microsoft, and it also applies to the mom and pop shop that will be doing some work that qualifies,” she said.
So beyond the size of the company, SRED can – and does – apply to companies in other sectors, like manufacturing, industrial and pharmaceutical. Businesses just need to figure out where their work might be eligible for SRED.
There are two categories for this – first, work for the purpose of technological advancement in IT, and second, support work for technological advancement in another field.
The second category can include computer programming, design, testing, engineering, data collection, mathematical analysis, operations research, testing or psychological research. This second category must contain IT work that directly supports your scientific research or experimental development.
To figure out which category your business belongs to, there are two main questions to ask here – a) what is the technology base of your company; and b) what underlying technology do you have an opportunity of advancing?
Basically, you need to know whether IT is a core technology for your business where you have a competitive advantage. If it’s not, it probably falls under IT support work, or the second category.
Here’s some examples the CRA provided of types of IT work where businesses probably can’t claim anything for SRED, as it doesn’t lead to technological advancement:
– Deployment
– Maintenance
– Customization
– Migration
– Porting
– Upgrading
– Requirements solicitation
2) Make sure you word your SRED application in a way that highlights the technological benefits of your research – not the business objectives.
It seems almost counterintuitive. Typically, to get any project approved, you need to demonstrate business goals – but with SRED, the focus is more on technological advancement than ROI. So when you go to write your SRED application, make sure you show what your research has done to boost technology forward.
For example, CRA staff outlined a case where a company might want to build a new version of your property records management system. The objective of that project might be to streamline records-keeping and make a full-featured, easy-to-use system.
However, that’s not what goes on your SRED application. Instead, you should write that your technological objective is to double your data management system speed over the last version you created. Knowing how to word your applications will make a huge difference in whether or not your business will get the right type of funding.
3) Make use of the CRA’s resources and tools – and all the ones mentioned here are free.
If all of this has sounded very confusing, but you’re sure there’s a fit for your business with SRED, the CRA has a lot of resources available for those who want to try them.
For new applicants, the CRA has created the First-Time Claimant Advisory Service, which essentially walks businesses through the process of applying for SRED.
There’s also the Pre-Claim Project Review process, which helps businesses plan and budget for their SRED projects. It’s similar to what happens during an audit, but there are no fees with this process, and CRA staff would help businesses with this before they submit their SRED claims.
And then there’s the account executive option, which gives businesses their own contact person for all things SRED-related. Plus, for more in-person interactions, the CRA often organizes industry-specific seminars and presentations to help businesses figure out how they can apply for SRED in their verticals.
Finally, the CRA recommends that businesses try out the CRA’s new Self-Assessment and Learning Tool (SALT). First rolled out on the CRA’s website in January, SALT is designed to help them figure out what they need to do to be prepare for their application from start to finish.
For SRED, there are a lot of free services – and the sooner businesses try them out, the better, Marquis said.
“The earlier we talk about what you’re doing, how you do it, and we have this conversation, the easier it gets in the end,” she said, adding the CRA recognizes that projects can change partway through.
“That’s the nature of the beast. We know you’re doing research, you don’t know what the next iteration will be. But at least if we get an idea of what the company is working on, and what you’re striving to achieve and improve, then it’s a very good starting point.”
Correction: A previous version of this post stated the Canada Revenue Agency provided $4.3 billion in assistance. The correct figure is $3.4 billion.
