Do you have clients doing scientific research or technological development in Alberta? Then, you need to check out this province’s Scientific Research and Experimental Development tax credit. The credit helps to reduce tax liability, and it can cover old tax debt, interest, and penalties. If there’s any left, that goes straight into your client’s pocket.
To qualify, businesses need to be corporations permanently established in Alberta. Unfortunately, individuals, partnerships, and trusts can’t apply. If the company meets the corporate and local criteria, it just needs to spend money on qualifying research and development activities.
Your clients need to be systemically investigating something in the realm of science or technology. They can’t claim this credit based on market research for a commercial product, quality control testing, or routine data collection. Similarly, the credit doesn’t apply to costs related to prospecting, social science research, or sales promotions. Rather, the work needs to be basic research, applied research, or experimental development directly related to furthering science and technology. When calculating the credit your client can also include costs related to supporting activities such as engineering, data collection, mathematical analysis, and computer programming.
Maximum Expenditure Limit
As of 2018, the maximum expenditure limit for a qualified corporation is $4 million. If your client begins operations in the middle of the tax year, the $4 million limit is multiplied by the ratio of days your client was in business. For example, if your client began operations on July 1, it can claim 50 percent of the credit (182 days / 365 days). In other words, they can only base the credit on a maximum of $2 million in expenses. The credit is 10 percent of eligible expenditures, so for $500,000 in expenses, the credit is $50,000.
How to Claim Tax Credit
Typically, to claim the credit, your client needs to fill out AT1 Schedule 9 Form AT 190 (Scientific Research and Experimental Development Tax Credit) and AT1 Schedule 16 Form AT238 (Alberta Scientific Research Expenditures). These forms guide you through calculating the credit, and you can submit them along with your client’s tax return.
If the Canada Revenue Agency decides to review the claim, your client may need to back up its research expenses. The CRA employs research and technology advisers as well as financial reviewers to ensure your clients’ tax credit applications are valid. To that end, the CRA may visit to your clients’ place of business, contact staff directly related to the research, and review proof of expenses.
To back up expenses, clients can use goods created during the process, design plans, records of trial runs, or progress reports. Also, remind your client to maintain minutes of project meetings as potential support for claims and have your client retain final project reports, photographs, videos, scrap records, contracts, lease agreements, time sheets, payroll records, and invoices in addition to all accounting records.
The Alberta government recognizes the importance of scientific inquiry and technological development, and to foster advancement in those arenas, the province offers this special credit. Let your clients know if you think they might qualify and then guide them through the process. You also may want to implement a special way to earmark qualifying expenses so it’s easier to calculate this credit at tax time.