Take advantage of the SRED program during tough economic times

The Canadian business environment is becoming increasing competitive. With talk of recession looming in the horizon, it’s time to look at another ‘R’ word that can help you to recession-proof your company. And that ‘R’ word is RESEARCH.

Why should you conduct even think about research during a recession, you might ask? Sales are down, and companies are downsizing. Cash is scarce. Well, believe it or not, there is a way to obtain free cash flow from your previous years’ expenses. This method involves taking advantage of tax subsidies through the Canadian government’s SRED (Scientific Research and Experimental Development) program.

The federal government’s sred program is one of the most generous r&d tax incentive programs in the world. Filing for a sred claim can generate tax rebates from 20% to 41.5% of r&d expenses from the two previous fiscal years. This rebate can be either awarded in cash, or in tax credits, or a combination of the two, depending on your current taxable situation. Keep in mind that the sred program allows you to recapture funds that you had previously invested in qualified r&d activities. Therefore, if you haven’t taken advantage of the sred program already, you had better act quickly so as not to lose an entire year of eligibility!

Expenses that qualify for the sred program include:

- Salary that is attributed towards sred-eligible activities
- Business overhead expenses (estimated at 65% of the salaried labour costs).
- Contractor expenses that can be directly-attributable towards sred-eligible activities
- Materials that were consumed during the sred experimentation process

For example, let’s assume that you are in a net-loss situation for the current fiscal year. Let’s also assume that in the previous two years, you had spent the following on sred-eligible activities (each year): $200,000 in salary costs, $50,000 in contractor costs, and $50,000 in material costs that can be directly-attributed to sred-eligible projects.

How much cash flow could you generate by filing for a sred tax claim?

Total sred costs = {salary labour costs } + {business overhead costs} + {contractor labour} + {material costs}

= 2 x [ $200,000 + ($200,000 * 0.65) + $50,000 + $50,000 ]
= $860,000

Since you are in a net-loss situation, you are entitled to a 41.5% cash rebate.

Free cash generated by sred claim = $860,000 * 0.415 = $356,900

By filing for the SR&ED claim, you could generate $356,900 in EXCESS CASH FLOW!

Now, wouldn’t a cheque for $356,900 from the federal government help your bottom line?

The sred program is a little-known secret that offers you a huge competitive edge over your competition. Take advantage of the sred program, and not only will you survive the recession, but you will thrive afterwards.

About The Author-- Norman M Nicol is SR&ED tax credit consultant with Northbridge Consultants Taking the expert advice from Norm is like putting money in the bank when it comes to SRED. "It is the best kept secret of successful companies in Canada! says Norm, if you can claim it, you are doing something right." These honest qoutes come from experience in SR&ED tax credits for over 20 years.

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