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Federal Budget 2023: Key Measures for Canadian Innovators

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On March 23, 2023, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, unveiled the federal government of Canada’s budget for the 2023-2024 fiscal year. Titled “A Made-in-Canada Plan,” the budget is focused on ensuring Canadians have access to the resources they need to thrive, supporting businesses and workers to build a strong and inclusive economy, and taking a stand against climate change to ensure that Canada keeps pace with the large strides being made in the highly competitive global clean economy.

We have highlighted some of the key initiatives in the 2023 Federal budget and the impact these new measures may have on innovative Canadian companies in the years to come.

Scientific Research & Experimental Development (SR&ED) Tax Credit

Before delving into the new programs and initiatives outlined in Budget 2023, let us re-examine a critical Canadian program: the SR&ED Tax Credit. In the 2022 budget, the government announced their plan to review the SR&ED tax credit program, hoping to support Canadian R&D more effectively. To date, the results of this review have not been released. In fact, in the 2023 budget, there was no mention of any change to the program. It will be interesting to see what comes of this long-awaited review, and how the government endeavours to “provide adequate support” to Canadian innovators.

Read more.

Clean Electricity Investment Tax Credit

The Canadian government has proposed a 15% refundable tax credit to accelerate investments in clean electricity technologies, including non-emitting electricity generation, abated natural gas-fired electricity generation, stationary electricity storage systems, and equipment for electricity transmission. The tax credit will be available for new projects and the refurbishment of existing facilities. The government has also introduced labor requirements and commitments to achieve a net-zero electricity sector by 2035. The tax credit is expected to cost $6.3 billion over four years starting in 2024-25 and $19.4 billion from 2028-29 to 2034-35.

Learn more.

Clean Technology Manufacturing Investment Tax Credit

The Clean Technology Manufacturing Investment Tax Credit is introduced in Budget 2023 to support Canadian companies in the manufacturing and processing of clean technologies and critical minerals. This refundable tax credit is equal to 30% of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals. The investment tax credit is estimated to cost $4.5 billion over five years and an additional $6.6 billion from 2028-29 to 2034-35. The credit would apply to property acquired and available for use on or after January 1, 2024, and would expire after 2034.

Learn more.

Reduced Tax Rates for Zero-Emission Technology Manufactures

Budget 2023 proposes to extend the reduced corporate tax rates for zero-emission technology manufacturers for another three years beyond the expiry date in 2032, subject to a phase-out starting in 2032. The eligibility for the reduced rates will also include nuclear energy equipment and the processing/recycling of nuclear fuels and heavy water. The enhancements will cost $20 million over five years and an additional $1.3 billion from 2028-29 to 2034-35.

Learn more.

Canada Growth Fund

The Canadian government has established the $15 billion Canada Growth Fund to attract private capital for low-carbon projects, technologies, businesses, and supply chains. The fund will be managed by the Public Sector Pension Investment Board (PSP Investments) and will use investment instruments to absorb certain risks and encourage private investment in Canada’s clean economy. The Growth Fund will begin investing in the first half of 2023, and PSP Investments will establish an independent investment team with extensive experience to make investment decisions. The Growth Fund will maintain a reporting framework for public transparency and accountability, and contracts for difference will be provided to support clean growth projects.

Learn more.

Additional Funding for the Strategic Innovation Fund

Since 2018, the Strategic Innovation Fund has created over 105,000 jobs and leveraged $67 billion in private investment across 107 projects. In Budget 2023, the federal government announces plans to provide $500 million over ten years to support clean technology development, and up to $1.5 billion of existing resources will be directed toward clean technologies, critical minerals, and industrial transformation.

Learn more.

Final Thoughts

Budget 2023 focuses heavily on developing a green economy and innovating in clean technologies. It will be interesting to see how the proposed tax credits, funds, and programs incite change and affect the business ecosystem. Is this budget perhaps a turning point for Canada in the competitive global green economy? Only time will tell.

SR&ED vs CDAE: Everything You Need to Know

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For innovators in Canada, investments in research and development (R&D) are vital; however, funding innovation often proves challenging, especially for growing companies with limited resources.

The Canadian and Provincial Governments have several programs to help propel investment in R&D in companies across the country. Among them are the Canada Revenue Agency’s Scientific Research and Experimental Development (SR&ED) tax credit and Revenu Quebec’s Tax Credit for the Development of E-Business (TCBE), often referred to as “CDAE,” its French-language abbreviation.

We will explore the key similarities and differences between the two programs available to companies operating in Quebec so that you can get a better idea of whether the programs are the right fit for your company. Keep in mind that CDAE and SR&ED are not necessarily mutually exclusive—we will explore this later.

Nature of funding

Both the SR&ED and CDAE programs are tax credits.

A tax credit is an amount of money that a company can subtract from the taxes they owe the CRA and their provincial agency or it can be a direct refund regardless of taxes paid or owing.

In the case of a refundable tax credit, a company will receive a cash reimbursement at the end of the year, deducting any taxes due. Meanwhile, non-refundable tax credits are capped at the company’s tax liability—even if the credit exceeds the owed taxes, the company will not receive any additional reimbursements and the full value of the credit will not be used. Having said that, non-refundable tax credits can often be carried forward or back.

SR&ED is generally a refundable tax credit for Canadian-controlled Private Corporations (CCPCs). When claimed by non-CCPCs, the program offers a non-refundable tax credit. On the other hand, CDAE offers a combination of refundable and non-refundable tax credits.

Eligibility Criteria

Eligible Companies

Most significantly, SR&ED supports companies across Canada, while CDAE only offers credits to companies in Quebec.

The CDAE requires that eligible companies be focused on developing and selling software licenses or services. Your company’s gross revenue must be at least 75% derived from IT sector activities; 50% of these activities must be related to a core subset of the IT sector, as defined here.

Additionally, to qualify for CDAE credits, your company must have at least 6 full-time, eligible technical employees for the entire fiscal year of the claim.

This minimum requirement is more flexible for startups that have existed for less than 2 years. For these companies, they will meet the eligibility criteria once they reach 6 eligible technical employees in the fiscal year.

The SR&ED credit does not have revenue requirements, nor does it require a minimum number of employees.

Beyond the eligibility of the company, there is a second level of eligibility for CDAE: the eligibility of employees and their salaries.

Eligible Activities

SR&ED supports R&D activities in any industry. R&D activities must demonstrate a systematic approach, an attempt at technological advancement, and technological uncertainty. As such, projects related to technology that have already been validated and for which there is readily accessible information cannot be claimed.

Contrarily, the CDAE covers activities in E-business, SaaS, and B2B software companies. While CDAE’s revenue requirements are more restrictive, its eligible activities are less rigid and can include routine development.

It is important to note that CDAE does not cover programs that involve software that controls hardware or is built into hardware. As such, projects in the IoT or robotics are essentially ineligible because they involve software that controls mechanical elements.

Additionally, projects that rely on external data sets, such as AI or AI-adjacent projects, are ineligible for CDAE as well. To be eligible, data used in the project must be internally owned and generated by your clients.

Interested in learning more about SR&ED Eligibility? Read our guide here.

Eligible Expenses and Amounts

Both tax credits cover salaries; however, they have different requirements and credit amounts.

CDAE covers only the salary of employees in technical roles across the product development life cycle – including developers and QA. The CDAE offers a refundable tax credit of up to 24% and a non-refundable tax credit of up to 6% of each eligible employee’s salary. These credits are applied to the total salary, regardless of the portion that is directly related to the CDAE activities.

Note, however, that the CDAE only covers salaries up to $83,333, meaning that companies can only receive up to $20,000 in refundable credit and up to $5,000 in a non-refundable credit per employee salary. There are no restrictions on the number of employees that can be covered by CDAE; however, a fee must be paid to Invest Quebec for the annual eligibility certificates requested and this fee varies based on the number of employees claimed.

Unlike CDAE, companies applying to SR&ED can only claim tax credits on expenses such as salaries, wages, materials consumed or transformed, subcontractor expenses, and overhead.

The SR&ED tax credit covers only the portion of employee salaries and subcontractor expenses that are related to eligible R&D activities in Canada. In other words, the SR&ED refundable tax credit is based on the percentage of time spent on R&D activities relative to the employee’s salary. However, there is a tradeoff: this program also covers the salaries and wages of support employees, such as HR or payroll employees who specifically spend time recruiting engineers for the SR&ED project or handling payroll for project employees. This is known as indirect SR&ED and is claimed in different manners federal and provincially.

Note that, unlike CDAE, SR&ED tax credits are not restricted by a maximum eligible salary amount for non-owners.

Application Process

The CDAE’s application process is done in two levels: first, you must apply to Invest Quebec within 15 months of the fiscal year-end in which the expenses were incurred to receive an eligibility certificate confirming eligibility of the company and for all employees for which a tax credit is being requested. These CDAE applications automatically get reviewed—the process is standardized and systematic. Then, you must submit an application to Revenue Quebec (RQ) within 18 months of the same fiscal year.

Meanwhile, SR&ED tax credit must be claimed within 18 months of the fiscal year within the tax return to CRA and RQ and do not always get audited, but you can expect at least a first-year visit by the CRA.

SR&ED vs CDAE

So, we’ve discussed the two programs and their differences. Now, which one will be more beneficial to your business?

CDAE can help companies that are more advanced and are looking to scale up. Many companies receive more SR&ED tax credits in the early days of their innovation projects and then move towards increasing their CDAE funding amounts as SR&ED covers fewer of their activities.

Because routine development activities are covered under CDAE, businesses that are looking to maintain or improve existing technology will benefit. Meanwhile, these activities are not covered under SR&ED.

CDAE is also more beneficial to large or foreign companies since its tax credits are fixed regardless of size or ownership structure, unlike SR&ED which offers lower, non-refundable credits to non-CCPC and larger companies.

Stacking SR&ED and CDAE

If both programs seem like they’d benefit your business, how do you choose which one to claim? There’s good news: it is possible to claim both SR&ED and CDAE.

A few options exist if you want to benefit from both programs. Claiming federal SR&ED tax credits and provincial CDAE tax credits is a great combination. It is also possible to optimize both CDAE and SR&ED on the provincial level to maximize the tax credit amount, but this is tricky.

If you like to learn more about how to stack SR&ED and CDAE or need some help, speak with our experts to find the best option for your company’s specific needs.

Still Have Questions?

Read what our experts have to say in our SR&ED FAQ and CDAE FAQ articles.

If you’re considering submitting a CDAE claim or combining credits, don’t hesitate to contact R&D Partners at 1-800-500-7733 for more information or to schedule a meeting with one of our expert consultants.

Disclaimer: The views expressed in this article are provided for informational purposes only. It is not intended to nor can it replace the evaluation of your specific SR&ED or e-business tax credit claim by a dedicated professional.

SR&ED vs IRAP: Everything You Need to Know

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The National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) and the CRA’s scientific research and experimental development tax credit (SR&ED) are two programs of major importance for Canadian innovators.  

In this article, we will examine the key similarities and differences between SR&ED and IRAP and how these programs can work together to maximize your government funding for your innovative technology project.   

Nature & Timing of Funding 

The first fundamental difference between SR&ED and IRAP is that the former is a tax credit, while the latter is a grant. This mainly affects when the funding is received from each program, but also the administrative overhead necessary to access funds, as well as the reporting requirements that come with the funding.  

A tax credit – like SR&ED – provides funding after the expenses are incurred. For Canadian Controlled Private Corporations, the SR&ED program offers a refundable tax credit disbursed after the CRA receives the claim. Therefore, SR&ED is typically less useful in cases when a business is looking to sustain their cash flow as they undertake a project.  

This is especially true when a business submits their first SR&ED claim, since the retroactive funding will not arrive until after the end of the fiscal year. However, when claiming SR&ED every year, the refund from the previous year helps sustain the cash flow for the next period.   

IRAP, on the other hand, requires monthly refund requests after the initial application is received and accepted. This means that a grant program such as IRAP is naturally more apt at sustaining a business’ cash flow while a specific project requires it. This is especially true for first-time applicants.  

Funding Amounts 

Once the federal and provincial tax credits are combined, SR&ED typically offers a refundable tax credit ranging from 54% (no provincial tax credit) to 74% (Quebec, beyond the threshold) of eligible salary expenditures to Canadian controlled private corporations. The exact tax credit rate depends on the size of the claimant company and a few other factors.  

IRAP on the other hand is a grant and its funding is allocated on a discretionary basis. A certain amount is approved with the initial application when a budget is submitted. Therefore, the final funding amount will vary depending on  the project, but typically goes up to 80% of salaries expenditures.  

Eligible Expenses 

IRAP and SR&ED share salaries as eligible expenditures, but treat them very differently. Since IRAP is a grant program and must be applied for before the project starts, applicants submit a budget which will end up dictating the amounts of funding they are entitled to receive, if accepted into the program.  

For example, ABC Corp plans to assign 2 employees to work on a project they wish to fund through IRAP. They include this in their application, and the NRC agrees to fund up to 50% of those 2 employees’ salaries. Three months later, they realize they will need an additional team member to complete the project. The additional employee who ends up working on the project will, in this example, not be covered by the initial agreement, and therefore, their salary will have to be paid by ABC Corp, with no additional support from the NRC.  

Since SR&ED is a refundable tax credit, it is able to account for all the actual costs incurred for a given project for the past fiscal year. Those costs are eligible salaries, subcontracting expenses, and other eligible expenditures related to eligible R&D activities for the SR&ED project. This may also include certain overhead expenses. 

This level of specificity is why time tracking is important for a company planning to claim SR&ED.  

Let’s consider ABC Corp again. Say they decide to forego IRAP funding altogether for simplicity’s sake – we will return to stacking IRAP & SR&ED later. They decide to attempt to claim SR&ED for their project at the end of the year instead and are tracking their employees’ time as it is spent on different tasks and projects.  

We will assume, for simplicity sake, that ABC Corp is eligible for the maximum 74% refundable credit and have 5 employees in total. 2 of them begin working on the SR&ED project, but at some point during the year a third employee joins the project. When the time comes to submit the SR&ED claim, their eligible expenses would be as follows, assuming they did not receive any other overlapping funding for the project:  

First, because they did not work on the R&D project at all, 0% of the salary of the 2 employees who did not do any experimental development work would be eligible for SR&ED.  

For the 3 remaining employees who did do eligible experimental development work, the amount of time spent on the project needs to be taken into account in order to determine which portion of their salary is eligible for SR&ED. 

According to their timesheets, at the end of the year it can be concluded that: 

  • Employee #1 worked on eligible experimental development work 75% of their time.  
  • Employee #2 worked on eligible experimental development work 50% of their time. 
  • Employee #3, who joined the project much later, worked on eligible experimental development work 25% of their time. 

Therefore: 

  • 75% of Employee #1’s salary for the claim year is eligible for a 74% refundable tax credit.  
  • 50% of Employee #2’s salary for the claim year is eligible for a 74% refundable tax credit. 
  • 25% of Employee #3’s salary for the claim year is eligible for a 74% refundable tax credit. 

Of course, SR&ED claims are never this straightforward, but this example seeks to illustrate the basic principles that guide how the eligible salaries are determined.  

SR&ED can also fund materials necessary for the project, something IRAP does not do.  

Evaluation Criteria 

While there is some overlap when it comes to the eligibility criteria of SR&ED and IRAP, there are some important differences to note. 

First, neither SR&ED nor IRAP have industry specific criteria – therefore, any company could theoretically be eligible as long as they are conducting eligible experimental development activities. 

Experimental development can look drastically different depending on the industry. Find out how to determine if your project is eligible in our blog post all about the topic here.   

This does not mean either program funds anything or everything. For example, IRAP excludes any clinical trial activities from their eligible project costs. This does not exclude pharmaceutical companies altogether but is still important to keep in mind when applying for funding.  

Furthermore, neither program formally requires a minimum number of employees or years in business in order to be eligible. That said, while SR&ED can be claimed by an individual – there is no incorporation requirement – IRAP does require the company to be incorporated, and the company generally needs to be revenue-generating as well. Businesses with more than 500 employees are not eligible for IRAP, as the program is purposed to support small and medium businesses.  

While IRAP does not require a minimum number of employees, the program’s monthly reporting requirements make it more complicated to handle for small businesses with little administrative staff. A business entirely run by its two co-founders or an otherwise very small, specialized technical staff are rarely awarded IRAP funding. Therefore, the size of the team does have an impact on the usefulness of IRAP to a specific company.  

SR&ED is usually more advantageous for such smaller teams because, while it requires diligent time tracking of all activities related to the project throughout the year, the claim is only submitted once for the whole year. 

A key difference to note between SR&ED and IRAP’s evaluation criteria is that the CRA has no return-on-investment considerations when they fund a SR&ED project. On the other hand, IRAP’s mission is to advance technology in Canada and stimulate Canada’s growth as a science and technology leader on the world stage. Therefore, eligible projects are selected much like investments. Only those with the greatest commercialization potential and that advance science and technology in a way that the NRC considers significant enough will receive funding. In this way, NRC IRAP is a competitive program – not all applicants, even if they may be eligible, receive funding.  

SR&ED is not subjective. As long as a project and related corporation/individual meet the criteria according to the law, it will be accepted – assuming the claim is submitted correctly and on time.  

Stacking  

It is perfectly possible for a company to benefit from both SR&ED and IRAP for the same project. However, a few things must be kept in mind.  

Since some eligible expenses could both be covered by SR&ED and IRAP, having received IRAP funds throughout the project would necessarily reduce the amount of the future SR&ED refund. Of course, the difference here is the timing of when the funds are received. As mentioned earlier, IRAP is better designed for supporting cash flow because of its monthly reimbursement structure, so it makes sense to apply for IRAP if increasing cash flow during the project is a primary concern. It will still be possible to submit a SR&ED claim and receive the refundable tax credit amount, but it will almost certainly be reduced by the amounts that overlap with NRC IRAP funded activities.  

Want to find out more about the best practices related to stacking funding programs? Read our dedicated blog post here.   

Stacking funding programs requires paying extra attention to the stacking limits of each program and how they interact with each other. Double-dipping – covering the same expense twice – can come with its fair share of trouble.  

This is particularly true when using IRAP as the NRC conducts a systematic audit of every application, whereas SR&ED claims do not automatically get audited.  

Have questions about the SR&ED audit process and how to prepare for it? Find out more here.  

Whether you get audited or not, you should always be ready by preparing your claim carefully and having all the necessary documentation. 

 

Disclaimer: This article is intended for informational purposes only and does not constitute professional advice.

To know more about SR&ED, IRAP and any other funding program and how your business can benefit from it, contact Mike Lee at:  1-800-500-7733, 110 mlee@rdpartners.com.  

COVID-19 Funding and SRED: Best Practices for Canadian Companies

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Over the past few months, we’ve seen various levels of government create many new funding programs for Canadian companies that were hit hard by COVID-19 or the necessary lockdown measures. This has affected nearly every industry, from the biggest industrial manufacturers to our favourite local restaurants and independent coffee shops. However, receiving this funding is not the end of the journey. For many innovative Canadian firms, getting ready to file a SRED claim for 2020, the influx of government subsidies and other supports brings confusion about how these funding programs interact with the SRED claim.

As a general rule, any government funding that a company receives and that goes towards their R&D expenditures must be deducted from the amount they include in their SRED claims. This is to avoid what is commonly called “double-dipping”, which happens when the same expenses are covered by two or more different sources of government aid. Moreover, stacking rules as specified by each funding program must also be adhered to. As your company prepares its SRED claims, forgetting to deduct non-repayable COVID-19 pandemic support from your SRED-eligible expenses could end up costing you time and money, especially if an audit is conducted. Below, you will find important information about two of the most important Federal Government coronavirus relief programs and how they may interact with your SRED claims:

1. Canada Emergency Wage Subsidy (CEWS)

This wage subsidy has already seen a few different iterations in its short existence. This corner stone of the federal COVID-19 support strategy has distributed over $60 billion to Canadian companies to date and will continue to approve applications until at least June 2021.

You may have accessed the full 75% wage subsidy in its early months, and then, depending on your industry and how much it was affected by COVID-19, seen your subsidy rate go up or down with the introduction of the base and top-up subsidies system that allowed some businesses to cover up to 85% of their eligible salaries.

When it comes to R&D expenditures, the principle of how to treat the CEWS funds remains the same, regardless of the claim month and exactly which proportion of your employees’ salaries was subsidized. However, individual calculations will vary greatly. You will need to keep a few key things in mind:

  • You only need to deduct the amounts of the wage subsidy that apply to employees that are actively engaged in research and development activities; and
  • You only need to deduct the amounts of the wage subsidy that are proportionate to the amount of time your employee actually spent on research and development activities in a given month.

Here is a practical example: Let’s consider a company that has 10 employees and benefited from a 75% wage subsidy from CEWS in April 2020. Each employee’s salary amounts to $1,000 a month, bringing the total CEWS amount the company benefited from for April to $7,500.

10×(0.75×$1,000)=$7,500

However, that month, only three employees spent time on research and development activities the company can include in their SRED claim. Therefore, only $2,250 would need to be deducted from eligible SRED expenses at most, and that is if all three employees spent 100% of their time on eligible R&D activities that month.

3×(0.75×$1,000)=$2,250

Say two of these three R&D employees spent 50% of their time that month on eligible activities, with the last spending 75% of their time on eligible SRED work. For our first two, you would only need to deduct $375 each, and for our last eligible employee $562.5.

50%×(0.75×$1,000)=$375

75%×(0.75×$1,000)=$562.50

(2×$375)+$562.50=$1,312.50

In total, you would have to deduct a total of $1,312.5 from April expenses from your total SRED claim to account for the monies received from CEWS that month and avoid any double dipping. Repeat this process for every month you received CEWS and conducted eligible R&D. This will give you the total amount you need to deduct from your claim for the financial year. Do not forget that your CEWS rate will vary from month to month and make sure to adapt your calculations accordingly.

(2×$375)+$562.5=$1,312.50

2. Canada Emergency Business Account (CEBA)

This program was initially introduced as a $40,000 interest-free loan with the possibility of up to $10,000 of that loan amount being forgiven if the remainder is repaid by December 31, 2022. On December 4, 2020, the total loan amount was increased to $60,000, with now $20,000 eligible for complete loan forgiveness.

While it is officially a government loan administered by various local financial institutions across Canada, the potentially non-repayable portion of CEBA should generally be treated like a grant at this time for tax accounting and purposes (this can be reversed if the loan is not repaid on time and the grant portion is thus lost). This grant portion is a form of government funding that should be deducted in the year it is expected to be received and could impact other government funding. The R&D tax credit expenditures are reduced by government aid that is associated with R&D activities and this may include both grants and loans with “noncommercial” terms, as long as the government aid is directly associated with these R&D expenditures.

The important element to keep in mind with respect to interaction of financial aid and the SRED tax credit program is that any government or non-government aid your business benefited from that is directly associated with the SRED expenditures must be taken into account. Complex and often competing stacking rules for each program must be considered as well. This includes the programs mentioned above and the many other COVID-19 and other government incentives, even if we did not specifically mention them in this short overview.

How R&D Partners can help:

If you have any questions about SRED or COVID-19-related government funding, or if you are considering submitting a SRED claim, do not hesitate to contact me, Mike Lee, at R&D Partners:

1-800-500-7733, 110

mlee@rdpartners.com

Determining SR&ED Eligibility by Industry and Project Type

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Introduction:

Prior to the COVID-19 pandemic, Ibis World predicted that, over the next five years, the engineering services industry in Canada would begin to grow once more, having contracted following a drop in the price of crude oil in 2015. The field of biotechnology was similarly expected to expand. Though government assistance programs will help offset the impact of the COVID-19 pandemic, it’s unlikely that either industry will meet their original projections. Nevertheless, programs like SRED still exist to support activities within these industries, provided businesses know how to claim them.

Resources that describe general SR&ED eligibility criteria are abundant, but it is more difficult to find information related to specific industries or project types. For example, if you are in the aerospace industry and qualification testing takes up most of your fiscal period, how eligible is this activity? In this simple guide, we break down some key concepts and questions that may help you discern between eligible and non-eligible activities in certain industries.

 

Aerospace:

Often, the recipe for R&D and technology uncertainty in the aerospace industry comes from the fact that the field is stringent, regulated, and competitive . Technological objectives are constantly changing and becoming increasingly challenging to meet. Further, these objectives are often competing (e.g., reduced costs with increased performance) and demand experimental development to determine whether or not they can be met.

If your project is fairly mature and undergoing various rounds of certification testing, determining eligibility can be trickier. However, it is also worth noting that uncertainties can often be rooted in the sensitive nature of engineered goods and services being directly utilized by humans with serious safety implications. In the aerospace industry, durability and safety are typically expressed and certified under the following terms: 1) airworthiness (flight has been certified to be operative in air with passengers) and 2) flight availability (expressed as the probability of a fault occurring every flight hour, which must meet federal standards). As such, if there are uncertainties related to flight performance and safety that have yet to be understood and resolved, SR&ED continues, and related project activities could be eligible.

If you are able to answer “yes” to any of the following questions about your project, then related activities could be SR&ED eligible:

– Are there remaining tests required to prove the flight availability of your newly developed aerospace component (e.g., engine control software) in several flight and environmental scenarios?

– Is there still technological uncertainty that requires experimentation to determine whether objectives defined at the outset can be achieved?

– Are you still learning about interactions between control laws and flight performance in various flight maneuvers and environmental scenarios?

In addition to these scenarios, unexpected failures may arise during any stage of development and certification, necessitating further experimental investigation and SR&ED eligible activities.

Electrical Engineering, Electronics, & Control Systems:

Many widely-known theoretical tools have been established to explain and model phenomena in the areas of electronics, control systems, and electrical engineering . However, novel application of these theoretical tools in various devices and contexts may uncover complexities that necessitate experimental development, as modeling tools alone cannot accurately predict outcomes. What’s more, certain modeling efforts may be too computationally intensive, implying large costs and extensive development times. From these limitations, an opportunity for SR&ED occasionally arises as newer algorithms and modeling methodologies are developed, or as assumptions are made that must be experimentally evaluated. When developing new material systems and structures for semiconductor devices, antennas, and flexible transmission lines, for example, and subjecting these to uncommon signal frequencies and extreme environmental conditions, characterization activities that attempt to fill in gaps in the available knowledgebase could be eligible.

If you answer “yes” to any of the questions below, you could recover some of your R&D costs through funding programs like SR&ED.

– Are you developing new tools and algorithms to model otherwise complex and computationally exhaustive phenomena?

– Are you attempting to advance the state-of-the-art in microwave theory, signal processing, or non-linear control theory?

– Are you exploring new materials, processes, and leveraging quantum and electromagnetic theories to build next-generation semiconductor devices?

– Have you presented the theoretical basis to your current development at an IEEE conference?

– Does your project also add new knowledge to the fields of sensing, physics, chemistry, or signal processing?

 

Biomedical & Pharmaceutical Sciences:

Drug development and medical device development can be an expensive, multi-year process, but the good news is that many of these costs can be offset by several government-backed funding programs in Canada. From a SR&ED point of view, research and development in the life science sector is eligible on many fronts, compared to other technological sectors. For example, it is often clear what the established state-of-the-art is due to a vast collection of up-to-date publications concerning syntheses and clinical trials, the systematic, scientific approach demanded by SR&ED, and the uncertainty at different stages of development related to the efficacy, safety, and performance of chemical compounds and devices that interact with the human body. Given this, if you answer “yes” to the following questions, you’re likely eligible for SRED:

– Are you developing chemical compounds that interact with the human body?

– Are you dealing with scalability issues in large-scale synthesis?

– Are you building in vivo medical devices?

 

AI/Machine Learning:

Growth in the AI/Machine Learning industry has been rapid and widespread over the past few years. Accordingly, research institutions and industries alike that leverage AI/Machine Learning continue to be rewarded with lucrative funding opportunities. Naturally, the competition for securing these funds is also growing, and the bar continues to rise, especially where SR&ED eligibility is concerned. Nonetheless, if you are advancing the field of AI/Machine Learning or utilizing it to supplement your products or processes, we identified a few questions below that may help you better understand how eligible your AI/Machine Learning based project may be. If you answer “yes” to any or all of these questions, your projects are likely eligible:

– Would some of your work be potentially publishable in top-tier conferences in machine learning or directly advances a specific machine learning topic from a published resource?

– Are you dealing with strict performance requirements that, for example, encourage you to develop scalable and untested models and algorithms that can work with less data?

– Would your AI efforts and advancements impact another field of science like biology, chemistry, or agriculture?

 

Manufacturing:

Though SRED eligibility may be less common where traditional manufacturing is concerned, opportunities could arise when significant improvements to a product or existing process are sought, especially if artificial intelligence or advanced 3D printing can be leveraged.

If you answer “yes” to any or all of these questions, your manufacturing projects may be eligible:

– Are you attempting to increase production efficiency or adhere to more strict environmental regulations by applying technologies or materials that would not be conventionally used for your application?

– Additionally, does this require extensive experimental iterations?

– Are you adding new knowledge to other fields of science and technology, for example, processing advanced thermoplastics?

 

Conclusion:

It is important to examine both the experimental tasks and industry in which they are being undertaken to evaluate the eligibility and risk of a potential SR&ED project. Certain industries lend themselves well to SRED claims, while others are less obvious and more problematic. Having said that, we have successfully claimed SRED in some of the most unlikely industries, and there are a number of elements that can be incorporated into the process of filing a claim that will increase its chance of success. Please reach out to us if we can help you navigate the eligibility of a potential claim and ensure that all the possible steps are taken to maximize it and reduce the related risk.