Jul
29
Important Pointers On SR&ED Tax Credit
Filed Under Uncategorized |
What is Sr&Ed Tax Credit?
Sr&Ed is the abbreviated word pertaining to Scientific Research And Experimental Development. This term which is usually attached to tax credits is given to companies as a special incentive given by government through legislative enactment in order to promote and encourage such industries to use scientific research and experimental development programs to come up with new, innovative and ingenious ways to provide quality products and services to the public. To state it differently, Sr&ED tax credit is a sum of money or an advantage in the form of reducing the tax of companies when the latter has engaged or incurred in activities and expenditures that falls under scientific research and experimental development which more or less, the said category or criteria has been outlined by law.
Who is entitled to claim?
Subject to the criteria for the specific project, the following industries are eligible to claim: 1. Agriculture; 2. Food processing; 3. Greenhouses; 4. Manufacturing; 5. Fish farms; 6. Financial services; 7. Construction; And many more.
The activities conducted by the company to be eligible to claim the said tax credit are the following: 1.experiments and analysis; 2. design, analysis, data collection, and research; 3. technical support (but not for customers); 4. formulation, collection and collation of technical documents for internal use; 5. equipment and material preparation (this excludes maintenance); and direct employee supervision. On the other hand, these are not considered as under the realm of activities which are to be considered creditable: 1. sales, promotion, marketing and advertising; 2. business plan preparation; 3. customer support; 4. user documentation; 5. reporting to shareholders; 6. and other non-technical functions.
This is why a sr&ed expert or consulting firm is advised to be consulted in order to determine whether or not such subject can claim for tax credit. And to be able to come up with a strategy that would entitle such company to receive deduction without violating any law.
What are the components of SR&ED Tax credit claim?
An SR&ED tax credit claim entails the identification of SR&ED projects which shall be jotted down in technical writing. This is a formality required by law for convenience sake of the authority and the company applying for the tax credit. There is a necessity to identify the expenditures that falls under the SR&ED criteria to be used as a basis in determining the amount to be given to the company. But sometimes, this task is not easy because there is often an overlapping of projects that might result to faulty report which could be detrimental to the company’s application because it could either be rejected or be valued less by the authority. In order to maximize this great opportunity, it is best that a SR&ED be hired to conduct the examination since they are well-equipped and knowledgeable in that area. Tax credit claim must be handled cautiously because there have been reports that a good SR&ED assessment could give rise to a tax credit amounting to billion of dollars. Can you imagine that?