Sharing the SR & ED benefit

Expand your business with SR & ED (1)

Are you developing technology? Use SR & ED credit as a tool for business development. It is a radical thought, I agree, but, you will see, it works, if you change your point of view.

Traditional vision

The SR & ED tax credit is a great tool to fund your technology development. It helps you to advance your technology, develop your platform or generalize the application of your technologies to other fields. This, of course, is the generalized view. It is used everywhere and it is always adequate.

« Look at the SR & ED tax credit as a source of development …. of your business »

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On the other hand more and more companies are encountering difficulties with their claim. Many look to their R & D at the end of the year as a “retrofit” funding mechanism in the SR & ED program. This is one of the important causes of difficulties encountered by claimants: they have never thought or seen their development as a systematic process of technological transformation. And now they are claiming their projects as such. No wonder the CRA sometimes encounters difficulties in believing them …

R & D to develop your business

My point here is this: There is a tax credit program that is still generous enough to open up very interesting opportunities for all those who are developing technology.

The CRA now requires that the projects sought be seen and managed from the start as systematic experimental development project, so let’s go one step further. If we have the expertise to develop advanced technologies:

Let’s use the features of this program to identify business opportunities.
Maximize this credit by defining, from the outset:
the best legal structure
the top organizational model,
the optimal positioning of the project

In summary let’s develop another way to use this credit to your advantage and to that of our business partners. Just keep your eyes and mind open.

Let’s look at simplified situations illustrating our purpose:

IMPORTANT NOTE: We limit our discussion by avoiding important but very technical details regarding eligibility. Once opportunities are identified, qualifying the projects remains. If you intend to use one of these strategies, do not do it alone, consult your preparer, or better yet, call us.

Characteristics of SR & ED

Let us first recall some important features of SR & ED credit:

Generally, 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.
In the contract (or proposal) if you are paid to do R & D, you surrender the right to claim SR & ED. If you want to retain this right, write your contract to deliver a good, a product or a service. Your client does not have control over the SR & ED done, but he acquires the right to exploit the results.
The highest credit is on salaries. In Quebec, for example, the combined (federal + provincial) credit rate for salaries is almost double that of subcontractors. It is therefore very advantageous to claim salaries rather than subcontractor invoices.

In summary, we are asking for credit where the salaries paid to develop this technology are the highest and we write our contracts to facilitate our claims. Let’s now look at how best to use these features.

Share the best credit

Do you have a technology development team? Why not offer your potential customers to reduce their invoice by sharing the credit for a given project. A discussion can also determine:

Who has the most advantage in claiming SR & ED credit?
How to define contracts in order to maximize these benefits.
How to share the results.

Example:

A customer built his proposal by offering his client a rebate (from the tax credit) if he agrees to be the first to use the new technology. The credit is claimed by the developer because he is the one who pays the wages and gets the maximum credits. Ultimately, the customer gets cutting-edge technology at a reasonable price, which compensates him for the small drawbacks that this immature technology will have for him – and he will benefit from the improvements that will come in the next set-ups.

Conclusion:

SR & ED credits finance your technology development, but it is also a very powerful tool to support your business development and your technological vision. It is a matter of point of view.

It takes a good deal of vision, creativity and planning. But it is very possible. The key is to plan the credit rather than try to recover it at the end of the year.

In upcoming articles we explore alternative ways to use SR & ED credit to grow your business development.

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And you what do you think ? Do you have any experiences or questions to share about this? Did you like your reading? Tell us so. What should be added? What other topics are you interested in? You did not like this reading? Tell us so. What have you appreciated less in this text?