Get The Government To Fund Your R&D

Are you innovating to take your production even further? You may qualify for money back from the government. Every year the Canadian government provides approximately $3.5 billion to 30,000 companies through the Scientific Research and Experimental Development (SR&ED) tax credit program. The program was introduced in the 1980s and is administered by the Canada Revenue Agency (CRA) to encourage businesses of all sizes to conduct research and development. Businesses can recover up to 64% of their R&D spend.

Canada’s natural resource industry is the backbone of the country’s economy; however, the industry is in a critical phase with the decline of conventional oil and natural gas. To replace production and reserves, greater emphasis is being placed on production of heavy oil, oil sands, non-conventional gas (coal bed methane, tight gas, gas hydrates and shale gas), and offshore production. Investments by the energy sector in technology and Research and Development (R&D) has been increasing the life of mature fields, as well as enabling the development of new resources in a more effective and environmentally efficient manner.

Through the SR&ED program, the Canadian government is rewarding the sector with significant R&D tax incentives that are not just limited to traditional “white lab coat” type work. The majority of eligible work typically falls under experimental development, which means work undertaken to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto.

A project needs must meet the following 3 criteria to qualify:

1. Technological Advancement – advances the existing state of technology.
2. Technical Uncertainty – the problems or unknowns cannot be overcome by applying the techniques, procedures, and data that is easily available in the public domain.
3. Technical Content – the objectives must be clearly stated at an early stage in the evolution of the project, and the method of addressing the scientific or technological obstacle/uncertainty by experimentation or analysis must be clearly set out.

The legislative definition excludes work undertaken for the purposes of “prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas”. This causes many businesses to shy away from applying for the program. However, it is important to clarify that any work undertaken to advance technology, improve processing capability, or develop new materials, products or equipment that meets the SR&ED criteria is eligible – even if it was undertaken by a company that focuses primarily on resource extraction and production.

Examples of qualifying projects include new product development in areas such as: remote sensing, downhole tools, blowout pipes and valves, fracking and drilling fluids, demulsifiers, corrosion chemicals, drilling and pumping technologies, sulphur reduction and software, and information technology. The development of new petroleum recovery processes such as Vapour Extraction (VAPEX) and Enhanced Steam Assisted Gravity Drainage (E-SAGD), as well as potential projects in the oil sands such as bitumen extraction, bitumen/ sand separation, tailing management, bitumen upgrading, and water treatment could qualify. Any resulting development and testing in commercial field facilities could also qualify. There could be also eligible projects in other areas of your operations not directly related to oil and gas, such as developing new or improving existing equipment in transportation, storage, manufacturing, etc.

Before beginning any project, one must review its scope to determine potential SR&ED eligibility and put a documentation process in place to capture details of the entire project. The CRA will request all details about the research or development your company conducted, whether the projects were deemed successful or not. They will also require information about which employees worked on the project, what tasks they performed, and what amount of their time spent working was allotted to the project.

While the SR&ED program may sound complicated and the boundaries between eligible and ineligible work is not always obvious, the program can add significant dollars to your bottom line and help fuel other innovative projects and technological breakthroughs. When in doubt, seek expert opinion to determine if the work you’re doing merits a claim.