When companies apply for the Scientific Research and Experimental Development (SR&ED) – one of Canada’s largest tax incentive programs, one of the most challenging issues they face is distinguishing between a company project and a SR&ED project.
What’s the difference between SR&ED Project and Company Project? Get clear answer to the question will help SR&ED applicants and Canadian companies to:
- know which part of the businesses are qualified for SR&ED claim
- avoid the potential risk of SR&ED review and rejection
Company Project vs. SR&ED Project: Different Definition
If a company wants to apply for SR&ED, the submitted project in the application must be a SR&ED project. According to the explanations from the Canada Revenue Agency (CRA), the eligible work of a SR&ED project needs to fall within both of the following two categories:
- The attempt to achieve the specific scientific or technological advancement by overcoming scientific or technical uncertainty;
- The systematic investigation or research in the field of science or technology performed by professionals through experiments or analysis.
In contrast, compared to the SR&ED project, the company projects are driven by commercial purposes. For example, the construction of new facilities, the development of new products, or the upgrade of business practices, company projects may start from contracts with customers or internal decisions. Still, in the end, they will all make a profit.
One company project could be qualified to one or multiple SR&ED projects. In addition, the unsuccessful company projects could also be eligible for applying for SR&ED tax credits, as introduced in Truth of 5 Common Misconceptions about SR&ED.
Company Project vs. SR&ED Project: Different Objectives
One of the key differences between a company project and a SR&ED project is uncertainty. Many people misunderstand this concept as they believe solving a company problem with new processes, materials, and ideas is dealing with uncertainty. In fact, uncertainty is a gap in scientific or technological knowledge. A SR&ED project needs to fill these gaps and contribute to the overall knowledge base rather than just solving a particular problem.
There are plenty of questions to think about when companies create a project: does it have marketing potential? How much profit can it make? Is the product cutting edge that no one else offers on the market? These questions are essential for a company project, but not for a SR&ED project. In other words, it is the value that company projects care about, while CRA oversees and determines the qualification of SR&ED projects more focus on technological advancements, as discussed above.
Even though a project does not need to be successful to apply for SR&ED, it is essential to record results at each step. A SR&ED project is required to analyze the test results and keep tracking the findings. A company project may change direction after obtaining negative results, but that is not the case with a SR&ED project.
Company Project vs SR&ED Project: How could they work together?
Here is the normal life cycle of a company project: it starts with a creative idea and ends with the final product. However, between the initial preparation and the ultimate commercial benefit, companies may face multiple technical problems.
The goal for a company project is to create the product successfully, but for eligible SR&ED projects, it is about the scientific advancements you develop when solving the uncertainties.
In short, a SR&ED project is usually part of a company project. One company project may contain several SR&ED projects. Not all of the work performed within a company project will be eligible for SR&ED. Companies need to establish a clear understanding and differentiate these two, especially when filling a claim.
Getting clear about the difference between a company project and a SR&ED project is not easy; many people confuse those, so you are not alone.
Suppose the question: “How to differentiate company project from SR&ED project” is still confusing. You are encouraged to contact the SR&ED experts for a free consultation, and we are here to help even more about tax incentive programs.