Applying for the SR&ED tax credit is a complicated matter for which it is strongly encouraged to seek expert advice. Our case study comes from a mid-size manufacturing company that designs and builds custom motors for clients worldwide. We had a meeting with the owners to discuss the potential of filing a SR&ED claim, which is something their existing accountants had neglected to explore with them.
Our initial consultation uncovered the fact that the company had indeed been engaged in SR&ED activities for many years, based on unique requests from their customers to modify the motors in order to accommodate the extreme temperatures of local climates. Upon closer examination, we identified that the company was involved in SR&ED related projects for more than six years. Unfortunately, the government restricts retroactive claims to a maximum of two years.
We worked with the client to gather all the labour, material usage and subcontractor time. After our research, we found out that throughout the previous two years our client was using resources to test, modify and test again the specifications requested by customers. Because at no time was there certainty that these specifications could, in fact, be achieved, these projects were considered eligible for the SR&ED program. In this case, where the client did not even realize they were doing work that qualified for the SR&ED tax credit, with our help they were able to carve out a sizeable claim amount to $230,000.
Tax Credit Takeaway
It doesn’t hurt to investigate! If you are not sure but suspect that you may, in fact, be engaged in SR&ED qualifying activities, seek professional assistance. An hour of your time invested up front can save you the heartache of an unrealized cash refund. Ensure the right cash refunds to, by asking the right questions.
If you would like to know more about this kind of Tax Credits, go to the CRA’s website for Claiming SR&ED incentives. Check also our services or visit the website SBLR for more insights about tax planning.