If your company isn’t yet earning revenue, you are probably closer to the kind of startup that Eric Ries discusses in his book “The Lean Startup”.
That means you are most likely developing a new product or service. In Canada you may be eligible for important tax incentives.Canada’s SR&ED (scientific research & experimental development) tax credits can be a very important source of funds for companies doing qualifying work.
If the development work is difficult and involves technological risk, your company may qualify for annual cash refunds that approach 40-50% of your development wages. While a discussion of the eligibility requirements are beyond the scope of this course, if you think your company might be eligible, you should certainly take a look at the eligibility requirements.
If your company is eligible there are important record-keeping requirements that you’ll need to consider at the outset. While most CPA firms can help you file your tax return – which includes the SR&ED claim – many companies engage a SR&ED specialist to assist with the claim.
It is important to know that your own staff will have to take an important role in documenting SR&ED activities – even if you hire a specialist. Your developers will have to track their time and document the problems they faced – the time spent and the work done.
Unlike most CPA firms, the majority of of our clients do make successful SR&ED claims.
One of the biggest difficulties is that companies face is they focus – understandably – on the features and benefits of the products they develop. As a result – if they keep records at all – they document these features and benefits NOT the underlying technological problems.
As specialists we help companies properly define their eligible SR&ED projects (as opposed to business projects) and try to identify naturally-generated documentation that allows us to document the extent of eligible work done.