What to Look for in a SR&ED Time Tracking Software

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What to Look for in a SR&ED Time Tracking Software

Why is SR&ED time tracking important?  When CRA comes in for a project review, this is one of the first things they will request. Tracking hours using excel sheets or other informal approaches can lead to incomplete representations of the time spent on a project, leaving dollars on the table and you’re already under-claimed submission susceptible for criticism by the CRA appointed SR&ED project reviewer. Rather, implementing a SR&ED time tracking software coupled with the right process can cut down the guesswork and put your claim on solid footing.

There is a whole host of time tracking software built to track time and projects in general as well as other specialized software packages dedicated to solely tracking SR&ED activities. With all these types of SR&ED time tracking software out there what should you look for when selecting one that is right for you?

What to Look for in a SR&ED TIme Tracking Software ProfitScience

What to Look for in a SR&ED TIme Tracking Software Infographic

Usability

I am not going to beat around the bush here. If the SR&ED time tracking software you choose is not easy to use, your team will not use it. Having software that allows your team to keep track of time in the most efficient way possible is critical. This aspect should be the most important feature you look at when determining what tracking software you will use.

Your team members must be able to also write notes, comments as well as specific project updates. Having these comments tied to the time and date inserted into the software is also important. We will discuss this a later in this article.

 

Accessibility

Work these days rarely happens just 9 to 5 and only in the office. Having software that is accessible to your team members outside the office is important. This way any work completed off hours or when your teammates are working from home can also kept track of.

 

Scalability

Projects often start with a small core of team members. As projects progress and activities surrounding the project grows, more team members may be added to during the life of the project. The SR&ED time tracking software you chose must be able to easily scale with the growth of your team.

 

Reporting

This is one of the more important features to look at when looking at any SR&ED time tracking software. Reporting must be easy to use and easy to understand. With our own clients, we generally pair with an engineering lead to review all of the project hours and as a first pass, identify those that have the most hours while displaying characteristics of SR&ED eligibility. Without SR&ED time tracking software, this would be a difficult task to perform for all companies except for the smallest of teams. At a minimum, the reporting capability of your time tracking software should allow you to:

  • Determine your claim amount by knowing how much time your team member spent on your SR&ED eligible project.
  • Pull and collate project updates, progress and comments.

 

Process

Most people have a natural dislike of having to report their hours, regardless of whatever software you choose. Regardless of which SR&ED time tracking software you use, if it is coupled with a timesheet submission process that’s too rigid, your engineers will abandon it. On the flip side, too light of a submission process and the reliability of the data becomes compromised. In our experience, we’ve found that weekly timesheets are sufficient for most engineers or software developers as they generally keep notes on what they worked on during the week and can adequately report the time spent on each task.

Moreover, assigning a manager to review the that hours have been submitted by team members on a bi-weekly basis is a prudent step, especially in the first 6 weeks of implementing a time-tracking process as early on, some of your engineers or developers will not yet have formed the habit of reporting their hours.

Finally, a quarterly, or in some warranted cases, monthly review with your SR&ED consultant and engineering leads should take place to discuss project eligibility on an on-going basis. For some clients, knowing early on in the fiscal year that a new project is likely eligible for the SR&ED tax credit can result in budgetary and hiring decisions for the associated engineering or development team. As discussed there are a host of software out there that will be able to be deployed across multiple organizations, projects and team. This guide will allow you to start determining which software will fit your needs.

 

Does my Software Project Qualify for SR&ED?

Does my Software Development Project Qualify for SR&ED?

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Does my Software Project Qualify for SR&ED?

It is important for firms engaged in software development or interactive and digital media projects to fully understand the funding programs available to them.  One such program is the Scientific Research and Experimental Development tax credit (SR&ED).  Navigating the SR&ED waters can seem daunting, however if navigated properly, can provide your firm with extensive funding potential, with up to 74% of your project expenses returned to you. Even if you are fully aware of this SR&ED tax credit you might be asking yourself a very valid question; does my software project qualify for SR&ED?

Firstly, one must avoid common red herring assumptions about their project and why it would qualify for the SR&ED tax credit.  Namely:

  1. Having first mover advantage to service a given space with your software is irrelevant.  When clients explain that “We’re the first ones to build a ‘x’ type of  system for ‘y’ industry”, we explain that the SR&ED program reviewers couldn’t care less.  The SR&ED program is based solely on technological advancement (regardless of the size of the advancement) and not commercial advancement.
  2. “We spent a lot of time and money on this project.”  In and of itself, this is quite irrelevant.
  3. “No one has ever done this before”.  See point 1.
  4. “My friend who built a relatively simple system was able to claim the SR&ED tax credit successfully”.  Each claim is different and what may come across as simple on the outside can have significant technological complexity.  Even if a colleague has successfully claimed what seems to be a bogus SR&ED claim, they will get caught eventually and when they do dealing with CRA will be a costly, time consuming and painful process.
  5. Next, and closely related to the previous point, one shouldn’t assume that because your in-house built system offers similar functionality to that of a competitors system that you are ineligible for the SR&ED program.  Remember that if the knowledge base required to achieve the same functionality or performance of a competing system is not available in the public domain or considered part of the routine knowledge base of an expert level software developer, your project may still very well be eligible.

Main SR&ED Guidelines

One of the main SR&ED guidelines is that your project advances your company’s knowledge base in its associated field of science or technology.(Read more on the SR&ED tax credit in our post from November 2015). For software development projects, that boils down to:

  1. Identifying platforms, methodologies or techniques that were applied to your project but would considered “routine” engineering by expert level practitioners.
  2. Did your work require experimental development iterations that went beyond routine software development?
  3. Did your development work achieve a systemic advancement such as the integration of two platforms not designed to communicate with one another?  What about performance metrics beyond published capabilities of integrated platforms?

If you can answer points 2 or 3 in the affirmative, isolate the work associated with these advances in your knowledge base to form the basis of your SR&ED projects.  Next, you’ll need to demonstrate how the advancement came about.

Is Trial and Error Eligible?

As per CRA’s SR&ED’s guidelines your advancements must have come about using the scientific method.  In other words, trial and error is NOT a valid method.  Why?  Simply put, trial and error strategies are merely result-oriented.  Outcomes generated through trial and error are seldom repeatable, transferable or maintainable and rarely increase one’s knowledge base.  Without knowing why the combination of inputs resulted in a successful result, we have not increased our knowledge base.  Rather, a more scientific approach should be applied and demonstrated by showing:

  1. Your work was documented.  Note that software code with comments in the source code or check-in logs count, but as a bare minimum.
  2. Each development iteration was based on an informal hypothesis. Ideally you would have some documentation discussing notable potential solutions and explaining why a chosen path was selected.  Atlassian’s Confluence is an excellent platform to capture this type of data.
  3. Some form of time tracking system or reasonable estimation strategy (extrapolated from data such as calendar bookings, emails, etc.) was used to determine the number of hours spent on the project.

Determining and demonstrating how you were able to extend your company’s knowledge base beyond the publicly available knowledge base is the key to determining whether your software project qualifies for the SR&ED tax credit.

For further details book a free consult  with our Montreal based SR&ED consultants will assess your projects and discuss your options.

 

Changes to Ontario's ORDTC Tax Credit Percentages

Changes to Ontario’s OITC & ORDTC Tax Credit Percentages

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Changes to Ontario’s OITC and ORDTC Tax Credit Percentages

The SR&ED tax credit along with their ecosystem of partner tax credits are always in flux.  Keeping on top of the latest changes in all of Canada’s is no easy task.  Here are the latest up dates to come out of the Ontario Government’s 2016 Budget titled “Jobs for Today, Jobs for Tomorrow.”

The Ontario provincial government announced the following changes in their latest provincial budget. These changes will mainly affect what are called “top up” programs. Credits for these programs are usually claimed in conjunction with the SR&ED tax program. One of the more significant of Ontario’s Provincial “Top Up” program is called the the Ontario Research and Development Tax Credit (ORDTC).

  • The Ontario Research and Development Tax Credit (ORDTC) will now sit at 3.5% as opposed to 4.5%
  • Whereas the Ontario Innovation Tax Credit (OITC) will currently be applied at 8% rather than the previous 10%

It’s important to note that these changes will affect eligible SR&ED projects and expenses generated or incurred in the years that end on or after the 1st of June 2016.  All of those on your team involved tracking SR&ED activities should take note of these changes.

Still not quite sure if you project qualifies for SR&ED tax credit or how these new changes in Ontario’s budget will affect funding for your SR&ED projects. Book your free consult today.

Claim the SR&ED Tax Credit

How to Claim the SR&ED Tax Credit in 30 Days

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If your company’s fiscal year end is December 31st and you’ve recently found out about the SR&ED (commonly pronounced “shred”) tax credit, June 30th 2016 is the deadline to submit the SR&ED claim for your 2015 fiscal year.  Taking the first few steps towards evaluating your eligibility and organizing your claim accordingly can seem daunting at first, especially within a constricted time frame.  Here are a few simple steps that will show you how to claim the SR&ED tax credit in less than 30 days:

SR&ED Tax Credit 101

To begin, it is worth reviewing that the Scientific Research and Experimental Development tax credit  The SR&ED program is a federal tax incentive program available to a wide spread of businesses that involve aspects of Research and Development (R&D). When determining whether or not your company is eligible for the SR&ED tax program find out, in the context of your company’s technological domain whether your company:

  • Attempted to develop or improve any new or existing products?
  • Attempted to develop or improve any new or existing development  processes?
  • File any patents?

If any of the above questions relate to your business, it might be time to consider applying to the SR&ED program.  To do so, you’ll need to describe work that was done and determine the amount of time spent by your employees on these projects. However, most people can barely remember the details of what happened in their project last week, let alone what happened on February 2015.  Here are 3 simple steps that will help you on your way:

Claim the SR&ED Tax Credit with These Steps

  1.  Start by going over and reviewing key aspects of the projects you have performed within the fiscal year that you wish to claim. Quantify your project in terms of size using time spent by your key technical personnel and develop an ordered list of projects from most time spent to least.  How did your technical personnel spend their time in each of their projects? Were a lot of hours spent because the team uncovered and tried to overcome some technological limitations in achieving the sought after objectives?  If so, these projects would likely be considered as eligible SR&ED projects.  However, if the project team was previously aware of all the steps needed to be taken during the project and just needed to work through these steps, these projects are unlikely to be eligible.  Remember that routine engineering or development work, on its own, is not considered as eligible SR&ED work.

If you’ve identified any projects where technical development work was performed due to a previously known or uncovered technological limitation, well done! You’ve now just identified your eligible activities. Next, you’ll want to identify your supporting activities.  You will use these activities to claim the SR&ED tax credit.

  1.  Identifying the supporting activities involves recognizing the parts of your projects that are, on their own, not considered SR&ED, but are in support of the core SR&ED activities described above. For example, an important part of discovering whether or not a given experimental development iteration overcomes the technological limitation your team faced involves a certain amount of testing. While testing is not considered to be a part of the core SR&ED tax credit, it is necessary in order to validate the development effort and therefore the associated time spent on testing or other testing expenses become admissible as part of your SR&ED claim.  Identify all the technical and project management hours that were in direct support of the SR&ED activities and include those hours as part of their SR&ED projects.

You’ve now identified and costed your core activities and your supportive activities.  The last step before contacting your accountant to prepare the T661 and associated provincial SR&ED claim form is to write up your SR&ED report. Make sure to you understand how your provincial government treats their SR&ED claims.

  1.  The biggest mistake we see when asked to review a claimant’s SR&ED report is the report’s focus on the commercial objectives of the project and not the technological objectives of the project.  An example of a commercial objective would be: “Development of the world’s best travel search engine”.  Rather, a technological objective would be stated as “Development of a semantic search engine with a response performance of less than 0.5 seconds.”  From the title, to the description of the technological uncertainties, advancements and work done, keep the report technical.  While you can use commercial context to help the reader understand your business context, limit this to your opening paragraph.  To give you an example of this, here’s what one of our reports’ first paragraph would look like: “In 2013 Google released it’s new travel website that returned search results in less than 0.7 seconds.  Our travel search engine could only return search results in less than 1.2 seconds.  Given that our travel search engine product was marketed as the fastest in the world, the company needed to improve the search engine’s performance to beat Google’s 0.7 second response rate.”  If such a project existed, the commercial discussion of the project would end there, while the rest of the report would focus on the technical activities performed to achieve the sought after objectives within the technological or financial constraints of the company.

To review

To claim the SR&ED tax credit you should:

  1. Identify your core SR&ED eligible activities.
  2. Identify your supporting activities.
  3. Write your SR&ED reports focusing only on the technical merits of the project and minimizing the discussion of commercial objectives or advancements

One last word of caution:  Do not, under any circumstances, try to claim projects that are clearly not SR&ED admissible.  CRA has cracked down on overly aggressive claimants which only results in increased scrutiny and a lot of time wasted by your key technical personnel on a bogus SR&ED claim.  If you’re not sure whether you have eligible work or not, feel free to contact us at info@profitscience.ca or call us at 514-865-3007 for a free consult.

IRAP vs SRED

IRAP Vs SRED: What’s the Difference?

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There are a host of tax credits and grants your company can claim or apply for if you are partaking in any development or research type activities.  Two of the most generous programs offered by the Canadian federal and provincial governments are the Scientific Research and Experimental Research tax credit (SRED, SR&ED or “shred”) and the Industrial Research Assistance program (IRAP). In this post we’ll review IRAP vs SRED and provide some insight on how to benefit from them.

IRAP vs SRED: Timing Is Everything

If you are in the planning or early stages of your product development life cycle and have a plan on how to commercialize your product, now is the time to apply for your IRAP grant.   While more mature projects are welcome to apply for IRAP funding as well, you can maximize your funding by applying early as the IRAP grant, if awarded, will subsidize up to 50% of your project’s costs and is classified as a non re-payable loan or subsidy.  While there is no deadline to apply for the IRAP program, it is important to note that funding for the IRAP grant is a budgeted item in the Canadian Federal Budget, hence there is a limit to the funds IRAP can disburse.  Hence it’s prudent and may be strategic for you to apply early in the government of Canada’s fiscal year, which runs between April 1st and March 31st for a given year.

The SR&ED or “shred” program subsidizes projects in the form of a refundable tax credit and is governed by the CRA.  Hence out of pocket expenditures must already have been incurred to benefit from the SR&ED tax credit program.   Moreover, the SRED program has a strict 18-month deadline for which an application needs to be filed, in tandem with your corporate tax return, for a given fiscal year.  For example, assuming a company with eligible expenditures has a fiscal year end of December 31, 2014 they will have a hard deadline to file for the associated SR&ED tax credits of June 30th 2016.   As a rule we tell our clients filing amended claims to plan to file at least 3 months before this deadline to ensure their submissions will be accepted.

IRAP vs SRED: Payment schedules

Understanding the different types of funding schedules is another important step in your pursuit to determine whether the SR&ED or IRAP funding program is right for you.

As one can only apply for the SRED tax credit after the fact it is important to know that CRAs service standards are to respond to claimants within 120 calendar days for refundable claims and 365 days for non-refundable claims.  If you make an adjustment to your already submitted refundable SR&ED claim, the service standard increases to as long as 240 calendar days.  Then there’s each provinces individual delays which can add 30-120 calendar days of additional waiting time to receive the provincial portion of the SRED claim.  With such delays it is important to know that you must have the proper funds allocated in your budget to support your SRED eligible activities.

IRAP on the other hand will fund your project on a 12 months basis as you submit monthly expense reports to the NRC representative.  While this certainly stretches your budget to infuse cash into your company and accelerate your projects, the overhead involved in claiming the program can be a burden for some clients.

IRAP vs SRED: Competition

Finally it is also important to understand just how competitive both the SRED and IRAP programs might be.

Firstly the SRED program managed by federal and provincial tax agencies is not subject to a fixed budget. As such all projects that have met the eligibly guideline and that have filed a proper claim will typically receive some kind of funding. While there is no budget per se for the SR&ED program, making it the least competitive of the two CRA has recently instituted tougher policies to thoroughly review applications and throw out poorer claims.

IRAP on the other hand has a cap on its funding of approximately 270 million dollars.  Moreover, IRAP applications must include commercialization plans along with justification for the work being submitted for subsidy as research and development or leading edge type work, while funding is also subject to project and progress evaluation.  However, the benefit of receiving the funds as expenses are incurred are a boon to many Canadian companies.

Used correctly both the IRAP and SRED program can be integral to funding your research and development projects to fruition. For any questions, feel free to contact us at  info@profitscience.ca or call us at 514-865-3007 for a free consult