Tying innovation to tax incentives
SRED claims are highly underutilized tax benefits for food companies developing new products
Research & Development
Food processors, take note! It’s called Canada’s Scientific Research & Experimental Development (SRED) program, but because of the name few processors realize it will greatly benefit their businesses. Somehow scientific research just doesn’t seem to fit with making a better version of Kimchee (Korean cabbage) or Pancit Bihon (Filipino noodles).
But the incentives are there for developing new products, and federal and provincial tax credits can be worth over 40 per cent to eligible companies. It’s a highly underutilized competitive advantage for entrepreneurial food processors investing in innovative practices in response to consumer trends toward healthy, lower sodium and more tasty ethnic foods.
“Canada has some of the most generous SRED incentives in the world,” says SRED expert Shawn Rosenzweig, a partner at Toronto-based SBLR LLP Chartered Accountants. SBLR specializes in the manufacturing and food processing sectors. “A business can recover a remarkable $0.68 for every $1 in wages spent on qualified SRED activities,” he says.
According to Rosenzweig, food processors in particular are “underrepresented” in SRED claims filed. “Last year, more than $4 billion was paid out to over 20,000 SRED claimants in Canada alone, and some 75 per cent were small- to medium-sized businesses. Entrepreneurial food companies owe it to themselves to look into this.”
Claims range from $20,000 to a maximum of $3 million, and up to 41 per cent of qualified SRED expenditures are “refundable as cash.” Refunds are intended to help finance future projects, improve working capital and, most importantly, “enhance your competitive advantage,” says Rosenzweig.
What kind of activities might trigger a SRED claim in the food-processing universe? One expample is for pilot projects testing new or enhanced products in existing facilities or a small test production line. Another common eligible activity is testing products already in production to bring about improvements, such as:
• Faster preparation times.
• Less costly production.
• More environmentally friendly processes.
• Use of healthier ingredients like omega-3.
• Longer shelf life.
Even products that were not commercially successful can result in approved claims. In addition, spinoffs from the main business can result in SRED claims, such as new waste management processes, machine cleaning procedures, and so on.
“It’s time to take a hard look at the activities in your business and identify potentially qualifying SRED projects, or reinvestigate existing claims,” says Rosenzweig. He cautions that claims must be knowledgeably prepared and that, in a few cases, SBLR has uncovered missed opportunities from previous filings made by other firms. “In once instance, we were able to recover an additional $95,000 cash refund for a new client.”
SRED isn’t for every business, Rosenzweig added, but for food processing firms, it’s a major opportunity. Companies should make the effort to find out whether they are entitled to their share of that $4 billion already paid out to Canadian companies last year.
With eight partners and a support team of over forty people, SBLR LLP Chartered Accountants provides high-impact strategic tax planning, business advisory and assurance accounting services to small- and mid-sized privately owned companies. SBLR’s approach to servicing clients is based on proactive communications, analysis and no-nonsense strategic advice to assist them in reaching their full potential as entrepreneurs.
For more information visit www.sblr.ca