The Income Tax Act and the CRA’s policy guidelines specify the requirements for submitting an SR&ED claim while using contractors. The following are the main regulations and standards for SR&ED claims made by contractors:
Rules for Claiming SR&ED with Contractors:
- Eligibility: Contractors’ work must tackle scientific or technological uncertainties to qualify for SR&ED.
- Ownership & Control: The claimant must retain control and ownership of the SR&ED project, even when using contractors.
- Contract Clarity: Clear written agreements between claimants and contractors are crucial. These agreements should specify project details, objectives, processes, and scope, emphasizing SR&ED purpose and ownership.
- Thorough Documentation: Comprehensive records of contractor tasks, project progression, challenges faced, and outcomes must be maintained. These records should demonstrate how the contractor’s work aligns with SR&ED criteria.
- Financial Records: Keep invoices and receipts for contractor expenses related to SR&ED. These expenses are eligible SR&ED expenditures.
- Cost Allocation: Accurately allocate costs if contractors work on multiple projects. Claim only the portion directly linked to qualified SR&ED work.
- CRA Compliance: Adhere to CRA guidelines when submitting SR&ED claims involving contractors. Stay updated with the latest criteria and regulations.
- Audit Preparedness: Be prepared for potential CRA audits, ensuring you have the necessary documentation to support your claim, including work by contractors.
- Expert Guidance: Due to SR&ED’s complexity, consult SR&ED experts like tax professionals or consultants for guidance on structuring contracts and claims while ensuring compliance and maximizing benefits.