Subcontractors and SR&ED ‘Loopholes’

Subcontractors who are Canadian (i.e. companies operating in Canada), or individuals in Canada hired on a subcontract basis and are performing SR&ED eligible work, can be claimed under the program. The difference between subcontractors and employees is simply the refund rate. Through the program, a higher return rate is applied to salaried employees versus subcontractors. There is another scenario involving subcontractors that people mistakenly think is a loophole to be exploited. In some cases, a company will hire a Canadian subcontractor (typically a company) to perform some SR&ED eligible development on their behalf. The Canadian subcontractor then outsources this work offshore. Some outsourcing companies present this as a way to win business as they can lower their costs to the client, while still allowing the client to claim SR&ED on their work. In fact, this is not a loophole, and is something that the CRA accounted for long ago. Through a directive, that […]

SR&ED Advice: Treat the CRA Like a Customer

The number one piece of advice we give to our clients with respect to the Scientific Research and Experimental Development (SR&ED) program is to treat the Canada Revenue Agency (CRA) as a Customer. The reason for this is quite simple: Return on Investment. At the end of the year, the CRA will provide your company a return on your qualifying R&D investments through the SR&ED program. To get your return, you must undertake eligible activities, provide certain deliverables (i.e. T661) and maintain appropriate records. This is not unlike the activities an organization would undertake when completing work for a ‘regular’ client.  As in any other case, your return greatly depends on the customer satisfaction. One area where this philosophy particularly applies is maintaining quality supporting documentation for your SR&ED activities. In the T4088-08e (Guide to the T661), the CRA states that contemporaneous documentation is the “best supporting evidence that you […]