This is a guest post by Stan Singh [stan.singh [at] ca.pwc.com] and Peter Allen, Senior Managers in PriceWaterhouseCoopers SR&ED practice. Stan and Peter work with software companies to ensure they are making the most of their investments in new technology and will be contributing posts to StartupNorth with advice on how to do the same. Welcome aboard guys!
Bailout-shmailout! SR&ED tax credits have been available since the 1980s. For those of you out there who are not claiming these credits, perhaps you should be. And for those of you that already are, then you should note that for tax years ending after December 31st 2008, the claim application process got a facelift: you will have to use a revised claim form (the “Revised T661”), and you should be prepared for this new approach to claiming these credits.
What’s the difference? Well, the biggest change is that you will have to write your project descriptions with word limits of 350 words for the Technological Advancements and the Technological Obstacles (aka Technological Uncertainties or Technology Base Level) sections respectively; and you will be limited to 700 words for the description of the Work Performed. Up till now, there have been no such limitations.
A quick survey of a set of SR&ED project descriptions for start-ups showed an average of 900 words for the Work Performed section. The Technological Advancements and the Technological Obstacles sections both came in under 250 words. But now, the Technological Objectives have to be included with the Technological Advancements. And there is no place to provide any background information. So, for all but the smallest projects, we have a new challenge – we have to be very concise.
I recognize that entrepreneurs are all proud of the way they push the boundaries of technology to amaze customers, and the desire to describe in great detail the impressive advancements made resulting in a viable business with amazing potential – but basically, Canada Revenue Agency is saying “we don’t have time to read all that – just give us the facts!” And they are right – the purpose of these narratives on the Revised T661 is simply to prove that Experimental Development actually took place. The quicker that can be described clearly, the sooner you can get back to your technology development, and the sooner CRA can give you your tax credit.
So in the Work Performed section, focus on no more than three or four of the major technological challenges you tackled during the project, relate those efforts very clearly to the Technological Advancements and the Technological Obstacles, and don’t bother with any background material.
The Revised T661 brings other important changes to how you make your SR&ED claims, some of which we’ll cover in future posts. In the mean time, consider SR&ED credits to be your “stimulus package.”
Thanks for the info Stan and Peter. SR&ED credits are an incredible resource for Canadian startups. We (GigPark) recoup a good percentage of our development costs each year using the system. If there are any startup founders out there who do not use/know about SR&ED then I suggest they take your advice and check it our ASAP.
Thanks for the info Stan and Peter. SR&ED credits are an incredible resource for Canadian startups. We (GigPark) recoup a good percentage of our development costs each year using the system. If there are any startup founders out there who do not use/know about SR&ED then I suggest they take your advice and check it our ASAP.
I filed earlier this year using the new format. Although tricky to say everything in such a small amount of space I do think it is a better system. However, be warned, don’t count your words too closely. Our accountant was using tax prep software that does not count words, but counts lines. I had used every last word and had to do some last minute editing when the text did not fit in the available lines.
I filed earlier this year using the new format. Although tricky to say everything in such a small amount of space I do think it is a better system. However, be warned, don't count your words too closely. Our accountant was using tax prep software that does not count words, but counts lines. I had used every last word and had to do some last minute editing when the text did not fit in the available lines.
Very good post! It definitely shows a need for a consultant to help you through the recent changes to the program. We are seeing companies frustrated with the new form and choosing to not claim because of it! With the economy the way it is, no one should be leaving money on the table!
Very good post! It definitely shows a need for a consultant to help you through the recent changes to the program. We are seeing companies frustrated with the new form and choosing to not claim because of it! With the economy the way it is, no one should be leaving money on the table!