2. Scientific Research and Experimental Development (SR&ED) Program: Should You Take Part? Douglas Clay SR&ED Program Calgary, Alberta

3. SR&ED should You apply? What is the SR&ED Program? …a tax incentive program to encourage Canadian businesses of all sizes to conduct R&D that will lead to new or improved technologically advanced products or processes.

4. SR&ED should You apply? Topics  SR&ED Program Overview  What it is?  What it is not?  Factors Affecting Eligibility  “Routine” Engineering... versus SR&ED  So what? Should You apply?  Questions and Answers

5. SR&ED should You apply? Topics  Single largest government support for science and technology in Canada  One of the world’s best tax- based incentive programs  Entitlement program, not a grant CANADA CUSTOMS & REVENUE AGENCY ALL OTHER DEPARTMENTS

6. SR&ED should You apply? Grant vs Entitlement Funding SR&ED Investment Tax Credit  Demand program - no limit on program spending  R&D broadly based  Eligibility defined in law  Non competitive

7. SR&ED should You apply? The SR&ED Program  Encourages R&D in Canada  Used by ~ 11,000 companies and individuals annually  Provides ~ $1.5 billion/yr in tax credits  ITC (Investment Tax Credit) of 20 to 35% of SR&ED dollars spent  Delivers benefits after SR&ED performed

8. SR&ED should You apply? How SR&ED Can Be Performed  Internally: by claimant  Externally: on a contract basis  By payments to: – Universities – Research institutes – Canadian corporations – Approved associations

9. SR&ED should You apply? What Is SR&ED?  Systematic investigation Or search for knowledge  Carried out in a field of science Or technology  By means of experiment Or analysis

10. SR&ED should You apply? WhatIs Not SR&ED? (1) What Is Not SR&ED? (1)  Market research or sales promotion  Quality control or routine testing  Research in social sciences or humanities  Prospecting, exploring, drilling for or producing minerals, petroleum or natural gas

11. SR&ED should You apply? What Is Not SR&ED? (2)  Commercial production or use of a new or improved material, device or product  Style changes  Routine data collection

12. SR&ED should You apply? Categories of SR&ED 1. Basic research 2. Applied research 3. Experimental development for achieving scientific or technological advancement 4.Support work for 1, 2 or 3

13. SR&ED should You apply? Program Boundaries “GREY” AREAS FINANCIAL BENEFITS EARNED HERE OUT OF BOUNDS OTHER R&D COSTS OTHER R&D WORK SR&ED WORK SR&ED COSTS

14. SR&ED should You apply? FactorsAffectingEligibility Factors Affecting Eligibility The 5 Minute Version

15. Research& Development Research & Development Systematic experimentation to provide missing information Conceptualization Problem definition and design process Commercialization

16. DevelopmentDevelopment General knowledge Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Commercial needs Intuition Creative genius Experience

17. DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s)

18. DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) Verify or check model performance Troubleshooting Trial-and-Error De-bugging Standard testing Commercialize product or process... Focus

19. DevelopmentDevelopment Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) Verify or check model performance Commercialize product or process... “Routine Engineering” Increasing Detail & Feedback Precision

20. Research& Development Research & Development Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) y=? Verify model performance Commercialize product or process... Focus

21. SR&ED Research& Development Research & Development Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Formulate development objectives Conceptualize solutions Assess concepts / Check feasibility Define technical problem(s) Identify information requirements Design product, process or feature Build commercial test model(s) (S/T Uncertainties) Identify research questions (S/T Advancements) Hypothesize answers (S&T Content) Plan & conduct experiments Y =? Y =x 2 Verify model performance Commercialize product or process... Build experimental apparatus or prototype Focus

22. SR&ED should You apply? Work That May Be Eligible  Engineering or design  Operations research  Mathematical analysis  Computer programming  Psychological research  Testing  Data collection ...If essential to an otherwise eligible project as a supporting activity SR&ED

23. SR&ED should You apply? Assessment Criteria for Eligibility  Scientific Or technological advancement Your Hypothesis (resolving a Scientific Or technological uncertainty Your Question )  Scientific And technical content Your Systematic Approach

24. SR&ED should You apply? SR&ED Definition “Systematic investigation or search carried out in an eligible field of science or technology through experiment or analysis” Income Tax Act, §. 248(1)

25. SR&ED should You apply? Project Completion  Can it be consistently demonstrated under appropriate conditions that the technological problem has been resolved?  May occur at bench, pilot or plant scale.  In some cases, it may continue into the initial stages of commercial production.  Project failed or abandoned.

26. SR&ED should You apply? Documentation & Evidence Dated documents of:  Original project goals  The progress of the work  How work was carried out  Results & conclusions  Other evidence (e.g., samples, pictures, etc.) Documents created during the R&D process

27. SR&ED should You apply? Do You do SR&ED?  Research contracts from foreign clients  Collaborative research with local partners  Contracting research to others (in Canada) to solve your problems YES

28. R&D project. Is it SR&ED? No - Go YES carry on with project Place SR&ED in task(s) Is project foreign funded or over budget? carry on with project No - Go Over budget >$ threshold Prepare SR&ED claim Foreign O-Budget Go No Review resources available Go - resources available Go / No - Go Decision Tree Assist client to claim SR&ED ITC No-Go

29. SR&ED should You apply? 1) What is SR&ED? 2) Do you do it? 3) Do your competitors do it? 4) Are you eligible? 5) Is it difficult? 6) Is it worth it? 7) How do you apply? Key Questions

30. SR&ED should You apply? What Should You Do?  Claim all foreign funded SR&ED activities  Review all Canadian funded SR&ED activities  Offer clients a “Project Description” for their SR&ED activities

31. Discussion Questions / Answers Web site: www.ccra.gc.ca/sred