Precision SR&ED Blog

Small Businesses Lack the Proper SR&ED Disciplines

It is a volatile world for businesses of all sizes these days. Small businesses seem to struggle the most to keep up. More often than not, in order to keep up with the dog eat dog world, small businesses are left cutting corners and missing out on great opportunities such as SR&ED claims.

Simply put, a smaller business equals a smaller staff and they don’t always have the time to create proper disciplines in regards to SR&ED tracking. Often these businesses find themselves too intimidated to hire a consultant that can take care of this problem for them, not realizing that a consulting firm isn’t selective in the least regarding claim sizes. Instead, these businesses are left trying to file their own difficult T661 form. Time is money and many small businesses find they don’t have the time necessary to track their internal research and development projects. The consultant needs information such as hours, wages, overhead, expenses etc. These businesses find they are stretched too thin to track all the necessary data. By using an SR&ED software designed specifically for all these issues, the business can save time and money and hand a thorough and easily readable report to their consultant. Clearly, investment tax credits are pertinent to small businesses. With the help of SR&ED software, and possibly a consultant, a business can maximize their profitability.

Possible Changes to SR&ED on the Horizon

On September the 16th 2011, Jim Flaherty, the Minister of Finance highlighted the government’s commitment to creating a more innovative and educated workforce in an address to the Perimeter Institute in Waterloo, Ontario.

An expert panel was elected in October of 2010 to review the federal support on SR&ED projects and we can expect the findings and results in just a few weeks. The overall consensus in the business sector is that this program needs to change, but in what direction is the question. Currently, Canada is the highest ranked in G-7 countries in regards to educational spending on R&D; however it falls behind in its businesses spending on R&D. One can only wonder what the panel will decide and whether the country’s R&D dollars will be spent investing in businesses or education.

For more information on Jim Flaherty’s speech visit the department of finance:
www.fin.gc.ca

Or for information on the Research and Development Review Panel visit:
www.rd-review.ca

Why Are SR&ED Claims Rejected or Reduced?

When a company submits an SR&ED claim there is no guarantee that money is to be had. Often a claim can be subjected to a reduction or in rare cases, rejected. As those familiar with SR&ED know, there is a deadline to filing claims. A claim must be submitted 18 months from the company’s fiscal year end. Claims submitted after this deadline will not be reviewed. This may seem like an excessive amount of time, but do not forget all the data recovery involved, as well as information gathering. These processes must be completed along with all the other claim and tax filing.

Another factor, and possibly the most important, is whether or not the project in question actually qualifies as SR&ED. Consulting firms are capable of answering this question, however you can make it much easier for them by using SR&ED software which documents all projects so no stone is left unturned. When the CRA is evaluating a research and development claim, factors such as poor documentation, limited or no objective evidence, and fabricated information, can result in claim reduction or rejection. Precision SR&ED software directly addresses these issues. Documentation has never been easier to record and all the information is conveniently comprised into a clear and concise report. This software also allows for objective evidence such as receipts, pictures or plans to be managed in the same manner. With the software’s daily email reminders, employees will not forget to log precious information, eliminating the need to rely on memory or the possibility of generating fabricated information. These critical features are only a few of the numerous benefits to using this software. Precision SR&ED software is a vital tool, enabling government research and development claims to be more credible than ever.

SR&ED Financial Review Simplified

Like many Technology companies in Canada we participate in the governments SR&ED program every year.  The SR&ED program helps small and large companies reduce the financial risks associated with taking on the challenges of performing leading edge research and development qualified projects.

Approximately 4 weeks ago we had a financial review for our 2010 SR&ED claim. This is not uncommon and our 2nd in 4 years.  It was however our first review since July 2010 when the government introduced stricter guidelines on reviews.  After going through the struggles of our first review in 2008 and searching for supporting documentation to back up our claim I knew that this review would be much more in depth.  Fortunately having learned from a lesson in year 1 we started tracking time entry, objective evidence and project information in Precision SR&ED. This allowed us to generate a Claim-Report (see attached sample Claim-Report) at the date of the review which gave all the required information to our financial reviewer.  Within 90 minutes the auditor had completed the review and unofficially complimented us on what we provided.  Preparation was no longer a key part of the review; we had everything at our fingertips in seconds and satisfied all aspects of the review.

Scott Holmes
President
Extreme Technology

Changes to the T661

As of May 3rd, 2011, the CRA has once again revised the Scientific Research and Experimental Development claim form (or T661).  The revision of the T661 will hopefully expedite the processing of claims, but it is always best to know what to expect.

Firstly, under Part 2 – Section A, one will notice that box 222 “by analysis only” has been deleted.  It can be suspected that “analysis” was a grey area for auditors with little or no concrete evidence.  Secondly, and perhaps most obviously, under Section B where the CRA tries to get a good understanding of whether or not specific projects apply for the credit, the maximum space to fill in explanations has been decreased significantly.  Claimants must summarize their advancements, obstacles, work performed and research in a maximum of 350 words each as opposed to 35 lines.  Finally and most importantly, one will note that Section E of the old form has been moved and changed to Part 6 of the new form.  It has been modified in a much more specific manner.  Detailed information on all SR&ED projects claimed in a year is now required.  The previous form generalized the project costs into one expenditure rather than a summary or breakdown of each project which is now mandatory.

After a few small changes to the T661, the claimant must now submit more detailed information in a smaller required space.

To review the revised T661 form, visit the CRA website http://www.cra-arc.gc.ca/E/pbg/tf/t661/README.html

Fast, Easy-to-Use, & SR&ED-Specific

“The ability to offer our clients a top-notch SR&ED time and documentation tracking system like Precision adds to our value proposition tremendously. The system is fast, easy to use, and SR&ED-specific, so that there isn’t extraneous clutter like that on other generic time/project management systems. It’s a full-featured system, coupled with a terrific customer support network, and is thus a solution which we are happy to endorse for small and large businesses alike.”

Jason Schwandt,
Vice President, TSI
www.techcentiveservices.com

Tracking Labour and Expenses Deemed One of the Toughest Challenges of SR&ED Claims

The CRA offers businesses a great incentive in earning back some of their revenue through the SR&ED program. One of the greatest obstacles in filing a claim and maximising the return is the recording of labour and expenses.

There are several reasons SR&ED labour tracking and expense recording is so difficult. First and foremost would be human error. Employees or managers easily forget to clock in or out, or to log hours spent on each individual project. Very rarely are there daily reminders to do so. Often when it comes time to file these claims, people are relying heavily on their memories. If labour reporting isn’t time stamped, employees can very easily forge hours and expenses spent on projects. Most software geared towards tracking expenses misses vital SR&ED information. It is almost impossible to gather the supporting evidence for each and every project and to maintain it in one spot in an orderly fashion. Each project is in depth and involved in its own way. Some may require different employees with different wages to work different hours, making perfect tracking unachievable. While ordinary software can track your company’s labour, it is extremely broad. In order to boost your claim return, every hour and every penny should be accounted for.

Prevent Poor SR&ED Reporting with Pro-Active Emails

The term management generally is coined with the term responsibility. When using consultant firms for filing SR&ED claims, for the most part, it is the manager that answers to the consultant. Being responsible for employees is tough enough, let alone being responsible for the information they provide regarding their SR&ED work.

Precision SR&ED software ensures that information regarding R&D projects is recorded daily. With the option of daily email reminders employees receive an alert to record their labour, a manager’s need to chase them down is eliminated. They can opt for daily or weekly emails that notify them of the work performed and information reported. A manager can also view monthly reports on a specific project, or on a specific employee if need be. Liabilities are reduced for managers through this SR&ED software. Answering to an SR&ED consultant has never been easier with the information right at the manager’s fingertips.

SR&ED Software Improves Claim Efficiency

Precision SR&ED recently met with SR&ED Consultant, Gustaaf (Guus) de Man, to talk about how SR&ED software improves claim efficiency.

Here is a clip from our meeting with Guus…

Do you currently use software to manage your SR&ED claims? If not, please contact us today to learn how Precision SR&ED can benefit you.

What Is the SR&ED Program?

SR&ED or the Scientific Research and Experimental Development program is a tax incentive program primarily funded from the federal government to assist Canadian businesses of all sizes and divisions to conduct research and development in Canada. The SR&ED program is run by the CRA (Canadian Revenue Agency) and has been around for 20+ years. The federal and provincial government hopes to encourage new, improved, or technologically advanced products and processes. In turn, making Canada a leader in innovation.

The SR&ED program is the single largest source of federal funding available for research and development. Companies can claim and qualify for expenditures such as wages, materials, equipment, and overhead. Approximately 18 500+ companies apply every year totaling over 4 billion dollars in income tax credits. Average size of companies claiming SR&ED have approximately 6-7 employees.