SPECIAL FEATURE: The Link Between SR&ED and Quality Assurance and Food Safety

Quality assurance, especially in the food and beverage industry, often provides a repertoire of detailed documentation that can lead to an eligible SR&ED project your company has already engaged in. Often, documentation, samples, and records of tests undertaken as part of quality assurance can better define SR&ED eligible projects or can be used as supporting documentation. Trends in quality assurance, industry certifications/regulations, customer demands, have led to an increase in documentation in the food and beverage industry, and as a result, complete project stages are now more identifiable and substantiated, especially in relation to compiling a full timeline of issues, data, and tests run. Not only can this documentation be used to track a SR&ED project, but also the data can be used as proof of uncertainties/issues, work undertaken, and the successful resolution of your projects, and can establish timelines and scopes of trials.

Food safety is just as crucial as quality assurance when it comes to supporting or initiating SR&ED projects. New product development and certification will often result in a variety of collected data from your HACCP or food safety officer. In analyzing this data, you may realize that a product does not meet an established standard, and any subsequent work to comply with food safety norms demonstrates an instance where food safety can initiate an eligible project. In the same way, if food safety concerns arise as a result of microbial testing, for example, this may lead to an investigation into pasteurization techniques or studies in cooking/storage temperatures specific to the product. The work undertaken to resolve these negative concerns may very well be a viable part of your SR&ED tax claim, and your food safety work and data can be support activities within this claim. Work with extending or modifying shelf life can also fall under this category. Again, while each food safety project may not be SR&ED eligible, they can often lead to SR&ED project initiation or support claims related to other departments within your food and beverage company.

While utilizing the quality assurance and food safety departments as a tool to identify additional SR&ED eligible costs, you should consider third-party testing and other subcontract work. For instance, product developments or re-developments often require additional microbial, nutritional or property analysis testing performed off-site by qualified laboratories; however, performing testing through third parties means you may not be able to recapture all incurred expenses. Recent changes to SR&ED eligibility dictate that only 80 percent of subcontractor costs can be claimed as part of an eligible project, but this can still result in a significant recuperation of expenses. This is especially important given evolving standards provided by Health Canada related to food and beverage products that may necessitate an alteration in product composition to achieve different nutritional values. Some examples of tests that might be undertaken by subcontractors that may be eligible as supporting costs of a project include component analysis, such as vitamins, minerals, fat, or sodium; water binding/activity analysis; microbial testing; food spoilage analysis; and chemical composition analysis. It is also important to note that these third-party contractors must have a Canadian business number in order for their cost to form an eligible part of an SR&ED claim.

As proof of work undertaken, SR&ED claims rely on accurate, updated, accessible documentation to prove what work was completed and what costs were incurred. This might include tracking of formulations changes and batch sheets, analysis, brainstorming meeting notes, and project planning documents, as well as expenditures tracking of hours, contracts, material purchasing orders, scrap reports, and other proofs of cost associated with your projects. Hour tracking is especially important because eligible overhead expenses are calculated based on these labor totals. Eligible overhead expenses, calculated using the proxy method, have decreased from 65 percent of incurred labor costs to 55 percent in 2014, and this lowered eligible cost reinforces how crucial it is to capture all of associated costs and ensure you are receiving a tax credit that accurately reflects the work your company has done.