What is SR&ED?

• Encourages Canadian businesses to invest in developing and expanding their technological knowledge and capabilities for new or improved products or processes

• Make Canadian companies more competitive globally• Is supported by Federal and Provincial governments• >$3.5B is being claimed by over >15,000 business per year

Scientific Research

&

Experimental Development

Overview of the SR&ED Program Introducing Canada’s R&D Incentive Program

• Scientific Research and Experimental Development (SR&ED)

• Federal and Provincial tax incentive program administered by the Canada Revenue Agency (CRA). Notably updated in 1986 and updated periodically.

• The program is designed to encourage Canadian business of all sizes and in all sectors to conduct research and development (R&D) in Canada

• One of the world’s most generous R&D tax incentive programs, with no yearly maximum and reimbursements up to ~$0.66* of every $1 spent on eligible R&D

What is the purpose of the SR&ED Program?

What the Canada Revenue Agency (CRA) says:

“To encourage Canadian businesses of all sizes and in all sectors to

conduct research and development (R&D) in Canada.”

Page 3

Overview of the SR&ED Program What is SR&ED in Practice for Software Shops

• Most companies conduct “Experimental Development,” leaving the “Scientific Research” portion of the program for research facilities.

• When “best practice” isn’t good enough

• Innovation requires looking past the horizon

• Embracing technological uncertainty as an opportunity

• Systematic approaches to solving macro / big picture problems

• Failure may be an advancement in itself

What is the purpose of the SR&ED Program?

Page 5

Another perspective:

“[People] are mistaken when

they think that technology just

automatically improves. It

does not automatically

improve. It only improves if a

lot of people work very hard to

make it better.” - Elon Musk,

TED 2017, April 30, 2017.

Typical Advancement in Industry

Overview of the SR&ED Program Generating knowledge beyond the public domain

• d

Gap with industry knowledge/technology can be closed through non-eligible activities, such as formal training, literature research, self-guided learning, etc.

INCENTIVES in CanadaSR&ED within a Company Project

Understanding how it “fits” into you Business or Project

Page 8

Accounting Software

Data Exchange Engine

Overview of the SR&ED Program SR&ED within business projects

Business Project 1

SR&ED Project2

SR&ED Project1

Business Project 2

SR&ED Project3

Forward-looking project planning documentation Experimental Development Roadmap

Business Project 1

Business Project 2

Feature 1.A Feature 1.B Feature 1.C

Feature 2.A Feature 2.B Feature 2.C Feature 2.D

Experiment 1

Experiment 2

Experiment 3 Experiment 4

2017 Q1 Q2 Q3 Q4 2018 Q1 Q2

SR&ED

Page 10

Overview of the SR&ED Program Composition of an example SR&ED project

Experimentation and analysis

Support Engineering

Supervision and technical oversight

Technical documentation

Support Engineering might include:• Test harness• Scaffolding for field trialing• Load testing

* Directly in support of the SR&ED- Could you have furthered your SR&ED

goals without doing this?

SR&ED Criteria (T661 Report Content and 5Qs)

12

Grants & Incentives – SR&EDSR&ED Descriptions

R&D Tax Credits - Scientific Research and Experimental Development (SR&ED)

- SR&ED is the largest tax credit program

- Focused on how you develop new or improved materials, products, and processes

- Expenses incurred can be claimed to generate Investment Tax Credits (ITC)

- In many cases ITCs can generate refunds (income) while the expenses are still deducible

- Rates of return vary depending on your company size and ownership

- Provincial and Federal credits combine to provide varying rates of return across the country

2. – Technology inside the product

SR&ED in Ontario SALARY MATERIALSSUB-CONTRATORS

Best Case 66% 42% 34%

Worst Case 26% 18% 14%

Eligible SR&ED Expenditures

Slide 15

Grants & Incentives – SR&EDSR&ED Descriptions

SR&ED Evidence Checklist

The claimant is required to retain contemporaneous technical documentation.

Slide 17

“Easy” evidences – all must be dated:

1. Notebooks – issues, sketches, meeting notes2. Technical reports3. Test results – quantifiable4. Photographs 5. Samples, prototypes, pictures of scraps

Page 18

By when can we apply?How long does it to process SR&ED claims?

Common claim processing time framesAssumes filing with T2 and not as amendment

First time claimant

• Month 0: claim filed

• Month 3: First Time Claimant Advisory Service (FTCAS) meeting “request” from CRA. Education session only; claim typically accepted as filed

• Month 4: FTCAS meeting takes place

• Month 5: CRA FTCAS report issued and final tax processing begins

• Month 7: Notice of Assessment issued, along with SR&ED reimbursement

Subsequent years (no audit)

• Month 0: claim filed

• Month 1-6: claim accepted as filed

Common claim processing time framesAssumes filing with T2 and not as amendment

CRA Reviews SR&ED claim ~timeline

• Month 0: notice of review received. Site visit requested. Basic RFI requested.

• Month 2: CRA site visit. CRA interviews tech SME(s) and financial questions.

• Month 3: CRA sends RFI. Typically takes one month to coordinate and reply.

• Month 6+: CRA reviews RFI reply and either sends new RFI or begins final report. Often multiple RFIs.

CRA Review Comments

• Often takes 6-12 months

• Often multiple RFIs

• Looking for strong relationship between work performed and time claimed

• Can look through contracts to confirm that work performed in Canada (no shell contractors with work outside Canada)

• CRA reviewers may have a related (and current) technical background, but not always

How does a consultant assist you with SR&ED?

Claim Preparation

• Drafting technical reports

• Preparing costing support

• Preparing and filing tax forms

• Assistance with CRA, if needed

Advisory

• Guiding creation of contemporaneous documentation

• Team training on eligibility and tracking systems

• Development of documentation system to support the claim with tools you already use

• Ongoing discussions related to eligibility of specific projects

• Documentation preparation

SR&ED Process

Common consulting engagement models

• Contingency• Percentage of final accepted claim amount, usually with a minimum fee.• Invoice is issued once claim is accepted by CRA.• Most popular option due to deferred invoicing.

• Hourly• Advisory help provided on an hourly basis, with expectations set up front.• Common when companies want to do some of the work themselves or want

to manage fees closely.• Billed as work progresses.

• Fixed Price• Common for larger claims when a contingency model is impractical.• Billed as work progresses.