To benefit from the Scientific Research & Experimental Development (SR&ED) program, getting approved is based on whether a project is eligible. General SR&ED eligibility is focused on helping businesses of all sizes conduct their R&D projects in Canada.
However, going deeper into the requirements, one better understands the strictness of the criteria and what qualifies for SR&ED and what won’t. The way to approval is also based on an applicant’s ability to provide sufficient detail on the project, ensure their forms are filled out correctly and have structured their research within the parameters detailed in the criteria.
Here is how to get approved for SR&ED for your eco-friendly business:
Work Must Be Performed in Canada
The work must be performed in Canada as a base rule for an SR&ED project. A foreign-controlled corporation may apply, but the entirety of the project must have been done in Canada with Canadian labour if you are claiming the labour as an expenditure.
Type of Research
Your project must fall under one of three definitions. It can be ‘basic research’ where the work is done to advance scientific knowledge with no practical application in mind. It can be ‘applied research,’ which is research to advance scientific or technological knowledge with a practical application in mind.
There is also ‘experimental development’ where you work to achieve advancement and create or improve a material, device, product, or process.
Your SR&ED report is your technical narrative. This is CRA Form T661. As described in prior paragraphs, you describe why the project is happening, what technical challenges were faced, and what was done to overcome them.
A technical narrative is all about straightforward, scientific writing. Avoid any overt marketing language or sales and promotion talk. The marketability and profitability of a project have nothing to do with whether it qualifies as an SR&ED project. Discuss with a professional SR&ED consultant for more information on how to write the report.
In writing out your SR&ED claim, the three things to remember while writing your technical narrative are to highlight how you intended to advance scientific or technological knowledge, what technological uncertainty you faced, and the technical processes you went through to overcome the stated uncertainties.
Your project does not need to have succeeded to be approved for SR&ED. So long as the project meets the criteria, it’s possible to qualify even in failure.
Can I Apply For SR&ED If My R&D Was Abandoned?
Approval is based entirely on the project’s structure and if it falls within the accepted parameters. If your project was abandoned, postponed and has not resumed yet, failed to meet its goal, or continues into another year, you can still be approved for SR&ED funding. Don’t be discouraged if your project’s status or timeline is more complex than simple start and end dates.
How you pursue an SR&ED project must follow a systematic pattern of research or investigation. This means that before commencing, have a hypothesis based on fact and correctly identify the problem you’re exploring. Then, testing the hypothesis through intelligent experimentation and analyses. Then, building conclusions based on the results. A systematic approach is required for a project to qualify.
Exclude Ineligible Work
Your SR&ED claim must exclude all work that is not applicable. Often, projects have a combination of eligible and ineligible work, and applying for financing across ineligible work will result in your application being denied.
Ineligible work includes quality control or routine testing, anything involving sales promotion or market research, stylistic changes to existing products, commercial production of a new or improved product or process, and prospecting, exploring, or drilling for minerals, petroleum, or natural gas.
File Before the Deadline
The deadline for corporations to file an SR&ED claim is 18 months after the end of the tax year, wherein the expenditures you want to claim occurred. If you file outside of that deadline, you won’t be approved.
What to Do If Your SR&ED Claim Is Denied3
The CRA aims to process an SR&ED application within 60 calendar days after receiving the completed claim. If your claim is denied, you will receive a letter explaining it was denied.
In most cases, assuming your project meets the criteria for SR&ED approval, it’s often simply resubmitting the claim with more information or correcting errors in the original forms. Incomplete claims are not approved and will be returned to you if they are found to be the case.
What to Do If Your SR&ED Claim Is Selected For Audit
Your SR&ED claim may be selected for audit or review. This can take up to 180 calendar days after receiving the completed claim. You will be asked to submit additional information. Do so promptly, and there shouldn’t be any trouble getting the audit or review out of the way, hopefully resulting in an SR&ED approval.