Accounting for technology & software companies.

Questions worth getting ahead of

• Judging whether development work could qualify for SR&ED
• Keeping technical and financial records that support a claim
• Understanding refundable credits and how other funding reduces them
• Zero-rating software and services sold to non-residents
• Proving a customer’s residency and registration status

Software development is not automatically SR&ED

The CRA says SR&ED work must aim at scientific or technological advancement, address a technological uncertainty and be carried out as a systematic investigation. Computer programming can count as support work when it directly supports eligible research or experimental development. Routine work, such as quality control or routine testing, the commercial production of a finished product, style changes and applying knowledge that already exists, is excluded. Training, hiring an expert to apply what they already know and buying proprietary knowledge are also not eligible. Before your next release, write down the technical problem you could not solve with existing knowledge and what you tried.

Know what the credit can look like, and what reduces it

The CRA describes a basic investment tax credit rate of 15% and an enhanced rate of 35% that most Canadian-controlled private corporations may earn on qualified expenditures up to an expenditure limit. For most CCPCs that limit is $6 million for tax years beginning after December 15, 2024. The refundable portion depends on the type of corporation and on whether the spending is current or capital. Other government funding, such as NRC IRAP, reduces the credit you can earn, and provincial R&D credits reduce the expenditures you can claim. Bring your funding agreements and any grant letters to your accountant before the year-end.

Keep technical records as the work happens, and watch the deadline

The CRA expects documentation that shows what work was done, who did it, when, and how the related costs were calculated. For software, the examples it lists include design and system architecture documents, source code, project progress reports and records of trial runs. For a corporation, the SR&ED reporting deadline is 12 months after the T2 return is due, and the CRA does not accept changes after it passes. The CRA recommends filing the claim with your return, and early enough that it can flag missing information. Ask your developers to keep dated notes and time records, because rebuilding them later is difficult.

Sales to customers outside Canada need evidence, not assumptions

Selling to customers outside Canada does not automatically mean no GST/HST. The CRA lists services made in Canada and supplied to a non-resident by electronic means among those that may be zero-rated. It also says most supplies of intangible personal property to unregistered non-residents can be zero-rated, with exceptions such as property that can be used only in Canada. Suppliers must verify and keep satisfactory evidence of each customer’s residency and registration status when the supply is made, and for most intangible property other than intellectual property, the customer’s physical location. Keep a customer record showing country, registration status and contract terms, and ask about unusual cases before invoicing.

Support to discuss with Sora