Expand your business with SR&ED
SR&ED partnership locally and internationally
The SR&ED tax credit is excellent for financing the development of your technology. If you plan it well, you can also use this tax credit to accelerate your business development.
In a previous article, we illustrated how this credit can be maximized to benefit both parties.
Let’s look at other simplified situations where SR&ED credit is used to develop business.
IMPORTANT NOTE: We limit our discussion by avoiding important but very technical details. If you intend to use one of these channels, do not do it alone, consult your preparer, or better yet, call us. We have already implemented them successfully elsewhere.
Characteristics of SR&ED
Let us first recall some important features of the SR&ED tax credit program:
- The SR&ED tax credit is available to those who take the technological risk, unless they transfer this right through an R & D contract to another entity. The credit is therefore not automatically assigned to the payee.
- SR&ED does not exclude collaboration between companies to develop technology.
- The provincial base rate is more generous in Quebec than elsewhere in Canada. It is therefore beneficial to develop and claim SR&ED credit for activities in Quebec.
- The provincial credit in Quebec is always refundable (check).
Let’s look at how best to use these features to maximize your advantage.
1- Develop a R & D partnership
Two companies can claim the same project. Each will claim its own activities according to their technological stakes which may be different for each of the partners. These will be presented separately in the claim of each of the companies.
It is essential to define at the outset the relationships between the companies that collaborate here and who share the risk on the same project. This partnership may include two or more companies. A university partner may also be included.
If the partnership agreement is signed before the start of the project, it is possible to qualify this project for the “Tax Credit for Private Partnership Pre-Competitive Research” and to widen the eligible cost base for the Quebec SR&ED refundable tax credits program.
A customer develops a technology to save fuel. He needs to put this technology to the test in a real environment outside his laboratory. He has a partnership agreement with a customer that operates a fleet of trucks. Both submit a SR&ED claim. The first for developing and tuning of its energy saver and the second for the development and tuning of technologies and processes required to install and optimize the use of this economizer depending on the engine it is installed on.
2- Develop a technology for a company outside Canada
If you experimentally develop technology for a company outside of Canada, you can claim the entire SR&ED project under your control, even if the other company pays you to do this R & D. Here are two situations that capitalize on this idea:
Example of the European customer:
A Québec company is mandated to develop and tune a highly innovative technology. The client company is in Spain. The contract stipulates that R & D will be carried out on behalf of the Spanish client who will pay for this research.
Example of the head office abroad:
A Québec company, subsidiary of a foreign company, receives the mandate of the head office (say in California) to carry out research on behalf of the parent company, which will pay all the costs of this research on a “cost plus” basis.
To conclude, these strategies require a long-term vision of your technology and of the evolution of your expertise. They are only possible within a tight planning that takes into account the economic, legal, tax and eligibility dimensions of the SR&ED activities of each of the companies involved. You can not and should not do this without consulting experts.
These strategies allow you to share the benefits of the SR&ED tax credit and use them as a business development tool to:
- Obtain financing to develop your technological advantage in the years to come.
- Change your vision of your technologies, markets and partners.
- Open the doors to new customers for whom this advantage will be a generator of strategic agreement.
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