The Scientific Research and Experimental Development Tax Credit (SR&ED) program continues to be Canada’s largest business incentive program. Last year SR&ED provided $3,000,000,000 to over 20,000 companies across Canada. That is an average refund of $150,000 to each qualifying company. Refunds are given either as a tax credit or a refund cheque. A company can apply for SR&ED on an annual basis as long as they have qualifying SR&ED work. The program is open to any qualifying company in Canada but is often overlooked by print companies because they do not realize that they actually qualify for the program.
What is SR&ED?
Canada has offered incentive programs for business R&D activities dating back to 1944, with SR&ED being the most recent iteration. SR&ED is found in Section 248.1 of the Income Tax Act, and because of the vagueness of its definition it is very difficult to interpret how SR&ED applies to the print industry. The Income Tax Act defines SR&ED as “systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is:
(a) basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,
(b) applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or
(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto;”
Print companies qualify for SR&ED under part (c) of the program: experimental development.
How do I qualify for SR&ED?
One of the biggest misconceptions about the SR&ED is that a qualifying company must be performing groundbreaking work in the field of print, ie. when CREO developed computer-to-plate (CTP) technology in the 1990s eliminating a whole step in the plate making process as film was no longer needed to make printing plates. The need for major innovation is not necessary. In order to qualify for SR&ED a company must be performing qualifying technical work that raises the knowledge level of the company. This new knowledge gained must not be readily accessible in the public domain, meaning that it cannot be general knowledge or found on the internet.
There have been many technical changes that have occurred in the print industry since the rise of CTP technology which has resulted in the print industry undergoing a tremendous amount of SR&ED activity. These changes include shifts from:
analog to digital plates
solvent to water-based ink
analog to digital print processes
In order to qualify for SR&ED the work being performed by a company must be done in a systematic manner. This means that once a trial run is completed, results are analyzed before performing the next trial. For example, a new printing plate material is tested for process print and 40% dot gain is observed after 25,000 impressions. It is determined dot gain is the result of the plates being too soft, and therefore a harder printing plate material is chosen for the next set of print trial runs.
What is the SR&ED refund based on?
The SR&ED refund for each eligible project is based on the following expenditures:
employee T4 time (refund amount is 55% )
subcontractor time (refund amount is 20%)
waste materials (refund amount is 20%)
SR&ED claims are filed with a company’s corporate tax return and can be filed up to 18 months after a company’s fiscal year end.
What type of projects qualify for SR&ED?
There are several qualifying areas of SR&ED in the print industry including:
implementing new systems ie. Opaltone, Pantone Hexachrome or G7
testing of new printing plates
efforts to reduce banding
efforts to reduce dot gain
measures to increase colour consistency across print runs
testing of new print substrates
fingerprinting new presses
If your company is not currently claiming SR&ED it is recommended that you find an SR&ED consultant with print experience to assist you with the process. It can result in adding thousands annually to your company’s profitability.