Navigating the SR&ED program

Emerging environmental companies, long on innovation but short on capital, have potential access to more than 150 government funding, incentive and rebate programs. The key, says consultant Fred Hausmann, is to navigate the maze of programs to ensure that these entrepreneurs receive the maximum possible support to advance their products or services and grow their firms.

Hausmann was one of the panelists at the last Growing Your Business seminar “Turning Research into Dollars” hosted by the RIC Centre and OCETA.

FRED is particularly focused on obtaining the full range of tax credits available to companies through the Scientific Research and Experimental Development (SR&ED) tax incentive program. Administered by the Canada Revenue Agency (CRA), it is the largest single source of federal government support for industrial research and development. Companies can recoup up to 68% of eligible R&D expenditures.

In recent years, there have been some notable trends and changes in the SR&ED program, Hausmann observed. There has been an increase in the number of auditors and audits of applicant companies, and new application forms have been introduced, requiring briefer descriptions of the applicant’s product or technology and a more streamlined risk analysis outline.

At the same time, more supporting documentation is sought. This can be a challenge for smaller, entrepreneurial companies whose focus on innovation may leave little time for reams of paperwork.

Inadequate or incomplete documentation is often one of the main reasons a company’s SR&ED claim may be rejected by the CRA. Hausmann pointed out that the difficulties and setbacks encountered in developing or advancing innovative technologies, products or processes need to be as thoroughly documented as the successes. This will give the CRA a full picture of the R&D process and its prospects.

For more informationvisit www.fredgroup.ca.

Join us for Business Valuation – Busting the Myths: How do Investors Value Your Business at the  next Growing Your Business breakfast event series 7:30 a.m. to 10 a.m., Thursday April 14th at the University of Toronto Mississauga?s Faculty Club.

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Turning Your Research into Dollars

For technology start-up companies, it is essential to see revenue generated through research activities. Programs like SR&ED and other industry specific funds can provide invaluable support to help companies grow. In this seminar, we will discuss tips and strategies to leveraging different sources of funding to aid in successful commercialization through the analysis of a live case study.

Join us for Turning Your Research into Dollars “Growing Your Business” breakfast event series 7:30 to 10 a.m., Thursday March 10, at the University of Toronto Mississauga’s Faculty Club

Our guest speakers include

Fred Hausmann
Managing Director, Funding Research and Development Group Inc.

Lyle Clarke
Vice-President, Innovation and Blue Box

The Research Innovation Commercialization (RIC) Centre and the Ontario Center for Environmental Technology Advancement (OCETA) jointly host the 10-event series, which runs from September to June 2011. 

For a complete schedule visit riccentre.com

Pre-Registration $25, Pay at Event $30 (covers breakfast and parking). To register, visit www.riccentre.com.

For more information, contact Jasmeet Duggal 905-273-3530 jasmeet@riccentre.com

The RIC blog is designed as a showcase for entrepreneurs and innovation. Our guest bloggers provide a wealth of information based on their personal experiences. Visit RIC Centre for more information on how RIC can accelerate your ideas to market.

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Five Myths about the SR&ED Tax Credit

By Fred Hausmann

Contrary to what you may have heard, your employees are not required to don white lab coats and spend their days peering intently at beakers overflowing with bubbling solutions for your company to qualify for the federal government’s Scientific Research and Experimental Development (SR&ED) tax incentive program.

Unfortunately, myths abound when it comes to SR&ED – and sometimes these misconceptions result in companies failing to receive rebates they have earned and have every right to collect.

The following are five of the most common myths surrounding SR&ED:

Myth 1: A company must specialize in scientific research to quality for SR&ED.

Fact: Just as there is no dress code, there is no requirement that your company be some cutting-edge player in pharmaceuticals or industrial chemicals. Nor do you have to have chemists, physicists on staff. It’s also untrue that the work has to be original or represent a breakthrough discovery. The reality is most SR&ED claims are for small advances in process, design, quality, durability, energy efficiency and so forth – the kinds of things ordinary companies across all sectors of the economy do every day to stay competitive.

Myth 2: It’s for big companies only.

Fact: This is another pervasive misconception that I hear repeated all the time. Canada Revenue Agency says plainly on its website that the SR&ED program is intended for “Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada.” Statistically, small and medium sized companies account for 75% of SR&ED claims, with eligible expenditures typically ranging from $20,000 to $2,000,000.

 Myth 3: Our project doesn’t quality because it flopped.

Fact: Success, whether commercial or technological, is not a factor in the CRA’s evaluation of a SR&ED claim. The goal of the program is to encourage research and development activities that will lead to new, improved or technologically advanced products or processes. Even though an effort fails, the lessons learned and accumulation of in-house expertise can still offer benefits to the Canadian economy.

 Myth 4: If your company doesn’t owe taxes, it can’t claim a refund.

Fact: SR&ED is fully refundable for Canadian Controlled Private Corporations (CCPCs). Even if a firm is in a loss position and owes no taxes, it can claim 100% of its SR&ED expenditures each year.

 Myth 5: My accountant can handle it.

Fact: The SR&ED program represents one of the more specialized areas of the tax code. Indeed, the documentation filed in support of a successful SR&ED claim tends to have more in common with engineering than accounting. It takes a developed skill set to prepare a submission that will stand up to the CRA’s rigorous review methodology. In addition, an experienced SR&ED provider will be better able to determine what work qualifies and what does not, particularly when the research and development activities are somewhat obscure and non-intuitive. Bottom line, an experienced SR&ED professional is more likely to get you the full refund you’ve earned and have coming to you.

Fred Hausmann is the founder and senior managing director of Funding Research and Development Group Inc. (FRED), a business development and specialty tax service. FRED helps companies obtain the full amount of government funds and rebates, including SRED tax credits, they have coming to them. And then it helps them grow. Learn more about FRED’s services at fredgroup.ca.

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Your SRED claim on steroids

By Fred Hausmann

What’s the biggest mistake that you as a business owner or manager can make when it comes to your annual SRED (Scientific Research and Experimental Development) tax credit claim?

That’s easy to answer: Failing to file the claim!

Each year, the federal government distributes a whopping $4 billion through SRED to Canadian companies to encourage domestic research and development.

By the way, in case you’re unaware of SRED, it is one of Canada’s most lucrative and accessible funding programs for business. No matter what size your company is and regardless of the sector you operate in, you could be eligible to file for a substantial tax refund.

So if failing to submit a claim could be your biggest mistake, what’s the next major slip-up you want to avoid?

The answer to this question is not nearly as obvious, but it, too, could have significant financial implications for your organization. I’m talking about what your company does with the detailed business and financial information that is generated as a by-product of the SRED technical review process.

During the investigation process, focus is brought to bear on new discoveries your company has made and competencies it has developed over the preceding year as a result of its R&D activities. These competencies often represent opportunities to be first-in-market with products or services and could lead to new customers, expanded sales and growth.

The key issue here surrounds the word “could.” How often, in fact, do businesses follow up and exploit these opportunities?

In our experience after more than 15 years of specializing in R&D tax credit claims, the answer is “not nearly often enough.” Within small to mid-sized companies in particular, the owners and senior executives are already stretched to the breaking point. Moreover, there are the many challenges and hurdles that accompany launching a new product or service, expanding into a new territory or going after a different type of customer.

In essence, the problem is one of business resources. Small and mid-sized companies have no shortage of actionable, competitive ideas. What they tend to lack are the supporting business competencies in everything from sales and marketing to legal and human resources.

As a solution, companies should align themselves with a proven business development specialist. You should be able to count on your business development partner to provide a surround of trusted, top-of-class business service providers from which you can pick and choose.

With these required resources close at hand, you will be in a position of strength as you set out to transform your R&D discoveries into revenue-generating success stories.

For more insight into unlocking the potential of your SRED claim, learn how FRED Group has structured its business development partner program.

Fred Hausmann is the founder and senior managing director of Funding Research and Development Group Inc. (FRED), a business development and specialty tax service. FRED helps companies obtain the full amount of government funds and rebates, including SRED tax credits, they have coming to them. And then it helps them grow. Learn more about FRED’s services at fredgroup.ca.

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Qualifying for SR&ED

By Fred Hausmann

PART 2

Yesterday, I talked about why you should care about making a  SR&ED claim as a business owner. A qualifying project is eligible to receive from the government about 68 cents on every dollar spent.

SR&ED or the Scientific Research and Experimental Development tax program is one of the most lucrative funding programs for businesses offered by the Canadian government.

Here are a few examples of things that have successfully qualified for the SR&ED tax credit that you might not have thought of:
•    Printing companies that acquire new printing equipment where they try to push the equipment beyond its intended use.
•    Manufacturers that purchase machinery where they have to a modify that equipment in a non-standard way
•    Having a product work with another product where those two products were not designed to do this.
•    Using a new version of a program or tool where problems arise that you try to work around.
•    Software development where you are building something new or you are using a new tool set for the development.
•    You are building a web site where there are some new and cool features being developed that are not commonly available.

Once again, even the above examples are not clear cut and depend on the specific circumstances and technological fact pattern in order to make a final determination on eligibility. To make a determination you really need to work with someone who specializes in helping companies with their SR&ED claims. In addition, working with someone is the best way to ensure you are maximizing the dollar you are getting in your claim.

Fred Hausmann is the founder and senior managing director at the FRED Group Inc. a business development and specialty tax service whose mandate is to source, secure and support your business through the maze of government funding options. Specialties include SR&ED and other tax refund/credit programs. Visit FRED Group’s website or contact Fred at  email fhausmann@FREDgroup.ca

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What is a SR&ED claim?

By Fred Hausmann

PART 1

Why would you care what a SR&ED claim is as a business owner? How about getting 68 cents back on every dollar spent as a cheque from the government! You got it – it’s one of the best ways to help fund your company’s growth.

One of the most lucrative funding programs for businesses offered by the Canadian government is the Scientific Research and Experimental Development (SR&ED) tax program. More than $4 billion dollars is ear marked each year for the program.

The name “Scientific Research and Experimental Development” does sound a little intimidating but it really comes down to solving problems that have a technological component to them. The government did not want to call the program “Research and Development” (R&D) as they felt R&D could also mean solving problems through the “bumble and stumble” methodology, which they did not want to pay for.

The idea here is that you need to follow a “scientific” approach to solving the problem and not just run around like a chicken with its head cut off as the means to solving the problem. Now that’s not so hard is it? The government isn’t expecting you to make your employees wear white lab coats and behave like academic researchers – you just need to show that you followed a logical process in trying to resolve the issue.

It boils down to attempting to overcome a technological uncertainty, where overcoming that technological uncertainty is not readily known.  Wow, that was unclear but that’s part of the issue in claiming SR&ED! I can’t emphasize enough that there is a BIG GREY area as to what qualifies and what does not. The absolutely subjective things that the CRA looks at include:

• “what was readily known at the time?”
• “what exactly constitutes something being a technological uncertainty?”

Consequently, a lot of it comes down to “opinion” on the part of the CRA. What that means for you is you need to make sure you present the technological uncertainties and the technological limitations and barriers in the clearest possible manner. But that is a topic for different post. Watch tomorrow for what qualifies for SR&ED.

Fred Hausmann is the founder and senior managing director at the FRED Group Inc. a business development and specialty tax service whose mandate is to source, secure and support your business through the maze of government funding options. Specialties include SR&ED and other tax refund/credit programs. Visit FRED Group’s website or contact Fred at  email fhausmann@FREDgroup.ca .

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Free Government money? Does it really exist?

By Fred Hausmann

Free Government money?  Does it really exist?

The answer to this is YES and YES.

The government — and particularly the Canadian government — has a  mandate to support various business development initiatives and they achieve this through incentive programs. Many of these incentive programs include tax rebates, direct funding, loans and other forms of grant money.

The challenge faced by most companies is awareness.

It’s simply not easy for the uninformed to know where to begin.

After all, you can’t search for something if you don’t know how to ask!

And therein lies the rub because it’s quite unintuitive to discover what government funding your company qualifies for.

So how do you figure out what programs you may be eligible for?

Unfortunately there is no “master list” out there.

Remember, many of the programs are constantly changing, or they are short lived due to sometimes limited funds available (i.e. first come, first serve).

In some cases the programs expire when funding is all allocated, or they shift into a neutral state until such time as the government allocates more money.

A good proactive accounting firm will help you identify available tax programs – but finding a firm that’s able to commit the required time to your business while maintaining deep ties into the available programs is often easier said then done. In fairness, while your accountant is likely excellent at managing the day to day financial aspects of your business, it’s quite an additional time commitment to stay informed about the ever changing landscape of available government tax deduction and tax credit programs.

That being said, here’s a brief example list of programs funded by various foundations and government ministries.

These ministries include:

• Ontario Ministry of Economic development
• Agriculture and Agri-Food Canada
• Business Development Bank of Canada
• The Department of Canadian Heritage
• Industry Canada
• CANARIE
• Defense Research and Development Canada
• Canadian International Development Agency (CIDA)
• Canadian Institute of Health Research
• Ministry of Economic Development and Trade
• Natural Resources Canada
• Export Development Canada (EDC)
• Ontario Ministry of Northern Development and Mines
• Ontario Chamber of Commerce
• Federation of Canadian Municipalities
• Fednor
• Ontario Ministry of Research and Innovation
• Ontario Ministry of Colleges, Training and Universities
• National Research Council Canada
• Ontario Centre of Excellence
• Ontario Media Development Corporation
• Ontario Ministry of Revenue
• Sustainable Development Technology Canada

While this is not an exhaustive list, it gives you a good idea where the main potential sources of funding are for Ontario based companies. Currently all of these ministries have their own websites and investing some time reviewing them will identify the funding programs they are currently offering.

But What is the Best Option For My Business?

Each company’s needs are unique and your specialist can guide you, however at this time the most lucrative and largest funding source is the Scientific Research and Experimental Development (SR&ED) tax incentive program.

The SR&ED program gives business owners like you a total of $4B per year! This program refunds up to 68% of the eligible costs your business incurred (in Ontario) on ‘special’ projects.

In a nutshell, eligible costs are the costs associated with attempting to overcome technological uncertainties where it is not readily known how to overcome those technological limitations or barriers.

Needless to say, navigating the maze of government programs and obtaining free money is a complex process and with professional guidance often leads to a successful result.

Naturally you can use your current accountant or attempt the process alone, however it makes much more sense to have an experienced professional shepherd you through the application and manage the process for you.

About the Author:

Fred Hausmann is the founder and senior managing director at the FRED Group Inc. a business development and specialty tax service whose mandate is to source, secure and support your business through the maze of government funding options. Specialties include SR&ED and other tax refund/credit programs. Visit FRED Group’s website or contact Fred at  email fhausmann@FREDgroup.ca

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