How innovative companies can benefit from tax incentives
EDITOR’S NOTE: This project comes from associate partner Jeff Rodgers, Scientific Research and Experimental Development (SR&ED) consultant.
In the global race to get ahead of the competition, the company with the best technology wins.
Even the federal government knows that, says Jeff Rodgers, a NuFocus Strategic Group associate partner and one of the country’s top consultants in Scientific Research and Experimental Development (SR&ED).
SR&ED is a federal tax incentive program that encourages Canadian businesses, regardless of their size or sector, to conduct research and development in our country.
Administered by the Canada Revenue Agency, it is the largest single source of federal government support for industrial research and development.
This case study focuses on Jeff and his work at The Tank Shop Inc. in Caraquet, N.B., one of his many clients to request help in seeing if their innovative developments qualified for money back on their taxes through SR&ED.
The Tank Shop Inc. is a family-owned company dating back a half century in the community. Its 35 plus employees work to manufacture tank and pressure vessels as well as multiple storage systems. The systems meet various industry recognized building codes such as ASME, ULC/UL, AWWA, API, and DNV. The products are built with steel, stainless steel and/or aluminum.
The company sells to a market that extends across Canada and into the United States.
To stay competitive, the company in recent years had done a lot of innovation to modify their designs. Eric Dugas, mechanical engineer for the company which he co-owns with his brother and father, began to wonder if they were unique enough to qualify for the SR&ED program.
Eric met with Jeff and the company decided to hire him to help with the procedure of applying for the tax credits. That was three years ago, and Jeff has stayed with them, each year re-assessing possibilities and writing up their research and development application for the SR&ED program.
“I work with their accountant and help fill in all the blanks,” says Jeff. He knows from experience how the application needs to be presented. In many cases, when research and innovation is conducted, the incentive can cover up to 70 percent of wages and 50 percent of materials used in the development work.
Eric and Jeff both concurred that there are significant amounts of money involved and a person with special expertise in using the program is needed to make it work effectively.
“For companies that are not well versed in this program, I think it just makes so much sense to call in a consultant,” Eric advises. “You can’t take a manager away from running the company just to work on this, but the company definitely can benefit from it and that is why a consultant is needed.”
Jeff says his years of specializing in this area have trained him to look at huge development projects and see how to break them down into various innovative components.
“I look for the changes that the company itself may have overlooked. I look at the floor the people are working on and notice that something has been moved. What changed in their work process? Did they build a new machine to replace an old one?”
In this way, Jeff is often able to increase the amount of research and development claims the company can make.
So far, however, he estimates in the last eight years he’s pumped more than $8 million back into Atlantic Canadian businesses by securing research and development credits for their work.
“I really get excited about the amazing development work that is going on here,” he says.
- Companies investing in research and development stand a good chance of receiving federal tax incentives back through the SR&ED program. Unless you have a staff person specially trained in this field, it is a good idea to bring in a consultant who understands clearly how the program works and how your application can best be prepared.
- When you are constantly innovating, it is important to keep clear records about what has changed in your process. When you build a new machine to replace an old one, when you develop a new process and when you innovate with unique products and processes, keep track of the changes you are making. This is particularly useful if you wish to take advantage of federal tax incentive programs.