Research and development usually evokes images of test tubes, beakers and technicians in white lab coats. The result is that many Alberta companies do not believe they are eligible for the SR&ED tax incentives, yet SR&ED is government-defined R&D and is broader than what industry considers R&D.
The Alberta SR&ED tax credit was introduced in the province's 2008 budget and came into effect Jan. 1, 2009 for expenditures incurred in Alberta after Dec. 31, 2008. The SR&ED tax credit is limited to a maximum of $400,000 in a taxation year. The credit is based on 10% of the eligible Alberta SR&ED expenditures to a maximum expenditure limit of $4 million. That's on top of the 20% federal investment tax credit (ITC) for large corporations, or 35% cash credit for Canadian-controlled private corporations. ITCs can be applied to reduce federal taxes back three years or in the 20 subsequent years.
The difficulty for many companies is identifying and sufficiently documenting SR&ED eligible projects that are accepted by the Canada Revenue Agency (CRA).
"The advantage is that Alberta companies just became competitive with our neighbouring provinces, Saskatchewan and B.C., which also have a 10% provincial credit in play," says David Van Den Beld, a Calgary-based partner in PricewaterhouseCoopers' SR&ED practice.
"We see a lot of eligible activities going on that companies are not filing SR&ED tax credit claims for," says Rick Barnay, an Edmonton-based partner in the firm's SR&ED practice. "I think there's a big opportunity out there to gain traction for companies to actually become more competitive."
Typical Alberta industries that should be claiming SR&ED include oil and gas, oil and gas services companies, manufacturing, mining, pulp and paper, information technology, agriculture, aerospace, transportation, food and beverage, and pipelines.
"It's very rare that we've walked into a company and not found SR&ED," explains Shawn Reain, a Calgary-based partner in the firm's Calgary SR&ED practice. "We've claimed SR&ED in a surprising number of industries."
All companies, large or small, are eligible for the credit. The provincial government says it's especially important for start-ups and early-stage companies because they benefit even though they may not be earning enough income to pay income taxes. The tax credits have a 20-year carry-forward tax horizon, so even if companies are not in a taxable position now, they can benefit when they do become taxable five or 10 years down the road.
"It's really just companies being aware of this program and applying this program to what they're doing on a day-to-day basis," Reain says. "And that integration of the program into their day-to-day operations is really key in increasing the benefit out of this program. They have more cash in their pockets."