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How to Apply for SR&ED with Documentation

How to Apply for SR&ED with Documentation

To apply for funding from the Scientific Research and Experimental Development program, one must take months to prepare the claim with the necessary documentation, organize the information, complete the claim forms, and submit them.

Before applying for SR&ED, one must understand whether a project in its entirety or different project components qualifies. For an SRED claim to be approved, the project must be engaged in basic research, applied research, or experimental development. The business must have staff on its payroll and is required to have existed for a minimum of one fiscal year. The project must also have undergone an iterative process to overcome challenges or uncertainties.

If you’re interested in applying for SR&ED funding, these are the things to think about.

Who Can Apply For SR&ED

There is no limit to the types of businesses that can apply for SR&ED. What matters is the project and whether the project is applicable. Some companies apply for SR&ED in IT, manufacturing, agriculture, marketing, real estate, logistics, travel, consulting, and more.

An individual or partnership can apply, and so can non-profit organizations, public companies, and foreign-owned corporations as well, so long as the R&D is done in Canada.

SR&ED Application Form

The primary form used for SR&ED funding is Form T661 or T2SCH60. This form is where all your expenses are put in. These expenditures include salaries, subcontractors, materials, and overhead costs.

You may have one or more T661 forms to fill in. Some companies only have a single SR&ED project to claim, while others have multiple projects that must be filled out across multiple T661 forms.

Technical Narrative for SR&ED

With your Form T661, you will include what’s called a Technical Narrative. This is where you describe your SR&ED project, identifying what scientific or technological advancements were made in the project.

It requires a description of how you went about achieving your objectives. The Technical Narrative is a justification for classifying your project and work under the SR&ED criteria. To properly fill in the Technical Narrative, one must have the evidence to prove a project is applicable.

Scientific or Technological Uncertainties

SR&ED is used to fund innovation in science and tech. It’s essentially the biggest R&D grant in Canada. In Line 242 of your application, you must describe what scientific or technological uncertainties you overcame.

To quality, it does not matter if the result or objective was fully achieved. The objective must be clear, however. What you were seeking must be described in detail, indicating the knowledge base you started with and what you learned from the exploration. Describe any shortcomings or limitations in that knowledge base.

Describe Your SR&ED Work

Your work must be written in chronological order. It should be easy to follow and communicate that you understand the systematic nature of your investigation. State the hypothesis and its relation to the scientific or technological uncertainty. Detail the experiments and analyses conducted and then the results obtained. Then, write your conclusions.

If your SR&ED project spans multiple years, you are only to include parts of the project that occurred during the tax year in question. If contractors performed part of the work, include that inside your description.

SR&ED Documents

There needs to be significant evidence supporting what you’ve written in your SR&ED forms. Any documents generated during SR&ED work should be kept. Anything dated and specific to work performed is best. This is particularly true with financial records, i.e. financial statements, ledgers, journals and vouchers, receipts, contracts, and general correspondence.

Keeping records and support documents for up to six years is also recommended if you’re ever flagged for a review. That’s the general expectation that the program administrators have for all applicants.

SR&ED Work vs Non-SR&ED Work

Some projects aren’t as simple as being 100% SR&ED. There may be parts of the project that are applicable and others that aren’t. This is highly common in production and manufacturing. Segregating SR&ED and non-SR&ED work is important.

SR&ED Investment Tax Credit

The federal government offers up to a 35% refund rate on eligible expenditures, in addition to any SR&ED refunds offered by your province.

To acquire the SR&ED investment tax credit, T2SCH31 must be filled out alongside any other provincial forms. These forms will be filled in with the same costs written into your T661. Although it may seem repetitive, these costs are necessary, and the forms must be fully complete or risk having your claim denied.

Where to Send SR&ED Forms

SR&ED schedules and forms are submitted to the CRA with your corporate tax return. At most, the reporting deadline for Canadian-controlled private corporations is 18 months from the end of the tax year in which the expenses occurred.