In order to qualify for SR&ED benefits, a government incentive, a corporation must followed detailed proscribed rules and maintain sufficiently detailed documentation to support the application made through the income tax system.
The program is intended to benefit those corporations who are conducting research and development projects that meet certain scientific/technological criteria.
Satisfying the government’s requirements and meeting these guidelines requires a two-pronged approach, which while appearing separate, are actually quite heavily intertwined.
The technical submission, a written explanation under the constraint of a limited word count, is prepared by an engineer familiar with the type of work the corporation has undertaken, though an interview and consultation process with knowledgeable technical personnel of the company. From these discussions the engineer gains an understanding of the work done and is able to prepare the required narratives for the government within the written constraints, on a project by project basis. The engineer will also learn who worked on the projects and how much time each spent on allowable SR&ED. This information will be critical in the preparation of the 2 nd part, the financial portion, of the claim.
The financial portion is prepared by a tax person, specialized in the SR&^ED application process, and who will also be reviewing the corporation’s tax return to ensure that the maximum benefit under the program can and will be realized. As well, he/she will be discussing and determining the time spent on each project by the individuals, determined earlier by the engineer to be active participants in the SR&ED process. Financial information including salaries, wages, bonuses, expenditures, and other related costs will be gathered for inclusion in the corporate tax returns on prescribed schedules/forms.
Once the application has been submitted, there may be a delay of from three to twelve months before the claim is examined, accepted, designated for review or denied. Some claims may be accepted with simply a desk review, which does not necessitate any further interaction with the government. Others may require either a technical/scientific review, a financial review, or both. Whatever area is under review, the appropriate individual will attend at the company’s premises to review and observe the activities claimed to qualify for SR&ED. They will be seeking support documentation and any other evidence/information to assist them in determining the validity of the claim.
The period between receiving the letter and the actual visit by the government can be a critical time for the company, during which time the claim filed, is re-examined and supporting documentation including time documentation, is reviewed to ensure that strong support exists for the claim filed. After the review process, the government will make a decision on the projects and inform the corporation of it by letter.