CANADIAN CASE STUDY: Making projects possible with the SR&ED program
In today's tough economic climate, a penny saved probably equals at least two or three pennies earned.
In today’s tough economic climate, a penny saved probably equals at least two or three pennies earned.
But what about pennies already spent? For Canadian manufacturers, a good way to get some of that money back is through the Scientific Research and Experimental Development (SR&ED) program, the largest single source of R&D funding in the country.
Not convinced? Then just ask Tom Meisels, president of Toronto-based moldmaker FGL Precision Works Ltd.
Back in the spring of 2000, FGL picked up no less than two separate design awards (and wound up on the cover of Canadian Plastics) for manufacturing a 10,000 lb. mold set used to make 525 lb. structural road mats for use in the construction industry.
The project might never have been undertaken in the first place, however, if FGL hadn’t received help from SR&ED tax credit specialists Northbridge Consultants, of Cambridge, Ont. “When FGL was approached to do this project more than 10 years ago, we realized that it would be an unprecedented application and a huge opportunity for us, but also that there was a huge financial risk involved,” Meisels said. “But because the project met the criteria for the SR&ED program, and with Northbridge guiding us in putting together our claim, we were able to spend the money on R&D knowing that a good portion would be refunded.”
Flash forward to 2009, and the relationship between FGL and Northbridge is still going strong. “We’re still trying to push the envelope with new technologies, and Northbridge’s ongoing support with all of our SR&ED claims remains crucial,” Meisels explained.
According to Northbridge’s Courtney Wilson, any Canadian plastics manufacturer who thinks that the SR&ED program is – like a lot of government initiatives – too complicated, or that the payback will be too small to be worthwhile, should think again. “The SR&ED program is more important today than ever,” she said. “The key to qualifying for SR&ED is for a project to have uncertainties, and it’s these very uncertainties that make a project original and allow the manufacturer to stand out by reducing their competitor-base.”
Satisfying SR&ED criteria
To qualify for the SR&ED program, a project must satisfy three criteria. “There must be some technical uncertainly within the project, there must be clearly-defined technological objectives leading to technical advancement and there has to be systematic and experimental investigations undertaken on the project,” Wilson explained.
Additionally, some companies are required by the CRA to go through technical and/or financial reviews of their SR&ED claim. “A technical review is a general overview of the projects being claimed for SR&ED and supporting documentation, to confirm that some sort of technical advancement has taken place,” Wilson said. “The financial review looks at accounting documents, invoices, and other expenses to confirm that the amounts claimed are correct.”
Helping manufacturers understand the three criteria, gather documentation and then face the review process is where consultants like Northbridge can play an important role.
The amount of monies refunded by the program depends on the category under which the Canadian company falls. “A Canadian-controlled private corporation with net taxable income below a certain amount qualifies for a refund from the federal and provincial governments,” Wilson explained. “In Ontario, the total of federal and provincial refunds is about 40 per cent of the expense claimed. Companies with a net income above a certain level, or publicly-traded company, qualify for a tax credit of about 20 per cent.”
The number of companies taking advantage of the SR&ED program is growing, but Tom Meisels insists that everyone should be using it. “The program can make it affordable for Canadian shops to become the go-to people for investment by U.S. and European companies,” he said. “Without it, we’d all have to bear the full financial burden of developing new technologies, which is almost impossible in current conditions.”