How to save up to 35% on your IT projects

IT projects for corporations are typically expensive undertakings often costing multi-millions of dollars.

There is a way to potentially reduce the overall costs of your IT projects done in Canada by up to 35% through the Scientific Research and Experimental Development program run by the Canadian Revenue Agency.

The basics of the program are as follow:

Who qualifies?

“Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada”. CRA

What kind of Project qualifies?

Work that qualifies for SR&ED tax credits includes (from the CRA SRED website):
experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;

applied research to advance scientific knowledge with a specific practical application in view;

basic research to advance scientific knowledge without a specific practical application in view; and

support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research, but only if the work is commensurate with, and directly supports, the eligible experimental development, or applied or basic research.


IT Project Example:

The following example compares both a private company and a public company with a $5M IT project that has $3M in qualified expenditures for SRED Credits.

Private Company

IT Project is $5M
Qualified Expenditures: $3M
SRED Credits: $900K (35% of the first $2M and 20% of the next $1M)
Potential Project Cost with SRED credits: $4.1M
Savings: $900K
Percent Savings: 18%

Public Company:

IT Project is $5M
Qualified Expenditures: $3M
SRED Credits: $$600K (20% of $3M)
Potential Project Cost with SRED credits: $4.4M
Savings: $600K
Percent Savings: 12%

As can be seen, SRED credits have a tremendous impact on the overall costs of IT projects. Basically, in this day and age, if you are not exploring ways to reduce your overall project costs, you are doing your company a disservice.

Rules change all the time and you should consult the Canadian Revenue Agency’s website to see what they are:

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/bts-eng.html

Avanade in Calgary can assist you in any of your IT projects and help you offset the costs by assisting you with navigating the SRED program.

If you would like to find out more on how to potentially reduce your IT projects, please feel free to contact Chris Hamilton at chris.hamilton@avanade.com or at 403-476-1473.