It’s an invaluable tool that helps retain skilled workers, drives innovation and can see those who use it retire as millionaires.
The Scientific Research and Experimental Development (SR&ED) tax incentives serves as a springboard for Canadian businesses as they conduct research and development across any number of sectors.
The incentive can be used as a deduction against income or an investment tax credit that companies can utilize effectively year over year to help retain engineers who would otherwise move on to other firms.
The end goal is to help Canadian companies as they create technological advancements.
Though the program has been around for decades, navigating some of its nuances can be tricky and lead companies into prolonged meetings with the Canada Revenue Agency (CRA), due to lack of clarity or misunderstanding of SR&ED eligibility.
Michael Weatherby has helped companies of all sizes traverse these issues for close to two decades.
As a principal of SR&ED tax credit consulting services with Manning Elliott, Weatherby compares his role to that of a personal trainer.
“We can’t lift the weights for you, but we can do a lot of the prep work, a lot of the supporting activities and we can guide you proactively,” Weatherby explains. “There can be a lot work there and administrative overhead, whereas if you work with a SR&ED consultant, you get a lot of clarity on what the outcomes are.”
Weatherby describes the SR&ED as an ideal tool because of its flexibility: it’s done as part of a tax return and companies need not ask for permission from governments to embark on projects. Companies can move ahead with those projects, and then request the credit when filing taxes.
Another added benefit of the SR&ED is its standing as being politically agnostic — governments don’t pick winners and the process isn’t bogged down by ideology. Companies can choose which research they do and the CRA has its benchmark for objectively determining if that project meets the criteria needed to be considered a technological innovation – this allows companies to pick and choose what’s relevant to their business.
“A lot of companies that manufacture in Canada utilize this SR&ED credit and it really helps them to maintain a core group of engineers,” Weatherby said. “And it also allows them to double down in tough times and also to defray the risk of taking on projects.”
Another feather in the cap for the SR&ED program is its retention aspect. Weatherby describes the credit as an “anti-brain drain” tool that keeps engineers working, prevents layoffs and invites innovators to Canadian projects.
“SR&ED protects engineers and highly technical people’s jobs because they don’t need to get laid off right away by these companies,” Weatherby said. “It allows you to keep a critical mass of people on board on a project and active within the local tech and academic communities.”
Working with Manning Elliott allows companies to dig into the minutiae to figure out a company’s figures and eligibility. A proactive plan is established so uncertainty around outcomes is minimized, which in turn, frees those companies up to properly re-allocate resources into research and development, or other areas of the business.
Weatherby has seen numerous Canadian manufacturers survive through economic downturns because they had the flexibility to invest in their company. The SR&ED credit helped them to not lay off staff because they can work on projects that don’t have an immediate revenue return — but because they’re advancing technology, they have the certainty that the SR&ED will allow them to keep those employees going.
“I’ve seen that pay off a number of times in very Canadian-specific products,” Weatherby said. “These are companies that get acquired and people retire as millionaires. It allows companies to pick what’s important and it does so efficiently.”
