Timing is an important yet often overlooked factor when it comes to claiming SR&ED (Scientific Research & Experimental Development) tax credits. How can you strategically time your claim to increase your cash and tax credit refund?
First things first: if you miss your filing deadline, you can’t receive credits for that fiscal year. Whatever you do, make sure you’re capturing projects before the filing deadline has passed, which is 18 months after your fiscal year end. For example, if your company has a December 31, 2018 year end, you have until June 30, 2020 to file a SR&ED claim.
Cashflow is king these days, especially in the energy sector. Since the SR&ED program has a cash-back component in Alberta (up to $400K per year), SR&ED is more attractive nowadays than it may have been during boom times. The sooner you file your SR&ED claim, the sooner you can start reaping the rewards of a healthy boost to your bottom line. If you wait until just before your deadline, you’re delaying cash injection to your company by a year and a half.
Increasing the size of your return
Although it may be tempting to kick the can down the road, the earlier you file, the higher probability your claim is prepared on a solid foundation. It’s also likely to be larger. Why would this be?
- Staff turnover: turnover is a reality in all businesses. If staff are interviewed about SR&ED projects while they’re still employed at your company, the core elements of their project work will be captured. There’s also a greater possibility that incremental activities are included, which increases the size of your return. You could even identify entirely new projects which would have been otherwise missed if key technical staff had left the company.
- Technical details: Recording the nuances of your technology development is imperative to a successful SR&ED claim. Your staff know their project better than anyone, so get the details while they’re employed with you, and while their memories are fresh. Without technical details of the challenges faced and efforts made, your claim is likely to present weakly, be audited, and have a much higher chance of being denied. Therefore, make your SR&ED claim as strong as possible with supporting technical details soon after your fiscal year end.
- Time allocation: to claim wages as an eligible SR&ED expenditure, allocate wages to your technical employees. If you don’t have a reliable time-tracking process, you depend on the memory of staff to estimate their project time over a given fiscal year. People tend to estimate more conservatively after the passage of time, so have them estimate their time while memories are fresh.
- Documentation: finding and securing paper and electronic forms of documentation is essential to a successful SR&ED claim. Recent tax court decisions have established that, although a claimant was doing SR&ED-eligible work, their claim was denied due to a lack of technical documentation. As a best practice, generate documentation during your project, store it safely, and use it to support your SR&ED claim shortly after your fiscal year. Waiting a year and a half to pull together your claim can result in lost documentation which can exclude certain activities or even miss entire projects. During an audit, a shoddy documentation package can easily sink your case.
At the end of the day, your business can benefit from choosing to evaluate and file SR&ED sooner than later. It can accelerate cashflow and result in a larger claim to help your business thrive.
If you’re interested in exploring a potential SR&ED claim, reach out to us at firstname.lastname@example.org for a free, no-obligation assessment. We do all of the heavy lifting associated with preparing and defending SR&ED claims, so your staff can focus on their deliverables.