Subcontractors who are Canadian (i.e. companies operating in Canada), or individuals in Canada hired on a subcontract basis and are performing SR&ED eligible work, can be claimed under the program. The difference between subcontractors and employees is simply the refund rate. Through the program, a higher return rate is applied to salaried employees versus subcontractors. There is another scenario involving subcontractors that people mistakenly think is a loophole to be exploited. In some cases, a company will hire a Canadian subcontractor (typically a company) to perform some SR&ED eligible development on their behalf. The Canadian subcontractor then outsources this work offshore. Some outsourcing companies present this as a way to win business as they can lower their costs to the client, while still allowing the client to claim SR&ED on their work. In fact, this is not a loophole, and is something that the CRA accounted for long ago. Through a directive, that […]
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In today’s blog post, we’ll look at the misunderstood role of due diligence and how it pertains to SR&ED. Due diligence is a critical component of the ‘Technological Uncertainty’ which is one of the three main criteria of the program. In order to establish that a technological uncertainty exists, an organization must perform some due diligence to determine if the uncertainty is readily solvable using available knowledge, or if no information exists. Without performing this critical step, it is not possible to establish a valid technological uncertainty. There are two main misconceptions we see regarding due diligence and SR&ED. First, due diligence is a required component of the program, however the time spent in performing this task is not eligible. The reason for this is that you must establish that a technological uncertainty exists before you can begin your systematic investigation and/or experimental development and your due diligence precedes the establishment […]
On May 30, the CRA announced a new form, known as the RC532 with an eye towards improving the SR&ED administrative review process. The CRA hopes that this form with help monitor and track SR&ED reviews (for the purpose of training and policy clarification), making reviews more consistent. The form itself is straightforward and does make the filing a request for an administrative review somewhat simpler. The claimant is now (1) asked to explain the nature of the concern, (2) whether these concerns were brought to the attention of the reviewer and (3) were the concerns brought to the attention of the manager. These three questions (which have always existed) formalize the process a claimant must go through in order to apply for an administrative review. It remains to see how effective this form will be in dealing with the frustrations of the claimant. The criteria for an administrative review has […]