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Top 7 Planning Tips for SR&ED Claims

04/12/2012


The 2012 Federal Budget, tabled on March 29th of this year, marked a major change in how the government will move forward in funding research and development in Canada, as well as assisting in the commercialization of research and development in Canada. Specifically, the federal government proposed a number of changes to the SR&ED program in an attempt to make the program more cost effective and to streamline the compliance and administrative efforts of businesses and the Canada Revenue Agency.

As 2012 approaches its close, it is important to review your SR&ED projects and plan for the effects of these budget changes on your current and future claims. The following are 7 tips to assist with the process:

  1. Plan to pay wages for work performed instead of using bonuses. This yields a better result for SR&ED since year end profit bonuses generally do not qualify for SR&ED - it important to take some time and plan how to structure year end remuneration to R&D performers.
  2. Plan to pay wages by the end of the year. The proxy amount (the gross up of wages to cover overhead) drops from 65% to 60% effective January 1, 2013 - ensure any wages are paid by December 31, 2012, to avoid this reduction in value to the SR&ED claim.
  3. Consider your contractor relationships. Contractor inclusion for SR&ED drops from 100% to 80%. Consider both front-loading contractor workloads to be completed by December 31, 2012 and changing the relationship with your contractors to employees if they are doing a significant amount of work for you.
  4. Plan for capital purchases. Capital will no longer be eligible for SR&ED inclusion after December 31, 2013, so make sure your SR&ED budgeting addresses capital purchasing for the next year and beyond.
  5. Document, document, document. Make sure your information available to support a SR&ED claim is complete and accurate.
  6. Manage your income. The level of taxable income in your company can affect the company's ability to earn high rate refundable SR&ED tax credits. Make sure you are meeting with your advisor to manage taxable income within the company.
  7. Accelerate your planned projects. The tax credit rate for large corporations drops from 20% to 15% effective January 1, 2014. If you have any R&D projects planned that can be brought forward to an earlier time, the return on your R&D investment will be higher.​