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Funding innovation in engineering is critical to tackling climate change
By Richard Hoy
At a time when there is a renewed sense of vigour in the fight against climate change in the wake of the United Nations Climate Change Conference (COP26), it’s clear that innovation has a part to play and the private sector has to be on board too.
Canada has grappled with its stance on climate change for decades now, trying to balance a commitment to reduce emissions, while safeguarding the economy, which depends greatly on natural resources.
Change is on the horizon though, and Prime Minister Justin Trudeau announced at COP26 that Canada will impose a hard cap on emissions from the oil and gas sector. Driving more innovation in environmental science and engineering will help achieve these ambitious targets, not just with oil and gas, but with wastewater, air pollution, construction and infrastructure.
The engineering industry, which continues to be of crucial importance to these sectors, represents one of Canada’s most innovative arenas. But companies large and small need the necessary funds to make the required research and development (R&D) a reality. While the federal government is making separate investments in this sector, tax credits are often overlooked, despite how lucrative they can be.
WHAT IS AVAILABLE TO COMPANIES IN THIS SECTOR?
Tax credits for innovation are available in Canada through the Scientific Research & Experimental Development (SR&ED) program. Taking advantage of them can go a long way towards easing the costs of an engineering project. Consulting, municipal and industrial engineers are all eligible to make a claim.
However, even in an industry as challenging and complex as engineering, many professionals still neglect the tax incentives available for R&D because they’re either not aware of the scheme or they assume their work doesn’t qualify. These are costly mistakes because the government has been careful to make the rules quite broad, in order to spur innovation in all walks of life.
Contractor costs qualify too, so companies using third-party engineering expertise on R&D-related activity can still benefit.
WHAT EXACTLY IS SR&ED AND WHAT WORK QUALIFIES?
This rewarding tax incentive for innovation allows businesses to claim up to 41.5% of expenses incurred on R&D- related activity. This is a combination of federal and provincial incentives and it varies by province.
Not every cost associated with R&D can be included in a claim. However, the main qualifying expenses include staff costs, salaries, payments to contractors and third parties, and materials.
There are plenty of examples of innovative companies in past issues of Environmental Science & Engineering Magazine, from innovation in water and wastewater to reducing pollution and enforcing environmental protection.
Projects undertaken at the new $1 million water and wastewater treatment lab at the Southern Alberta Institute of Technology are likely to qualify for SR&ED, as would recent developments made by Waga Energy to deploy its WAGABOX ® technology to convert landfill gas to renewable natural gas in Quebec.
As a general rule, when it comes to identifying work that might qualify, there are three simple tests that must be met for innovation to be considered under these tax incentives. The work must: • Further technical knowledge or create advancement in the industry; • Overcome scientific or technological uncertainties; and, • Do something, by design, that other people would find hard or not obvious.
SR&ED is not to be confused with the Industrial Research Assistance Program (IRAP), which is a government-funded grant program available to small- and medium-sized businesses, rather than a tax incentive for R&D.
At a time when some engineering firms are struggling financially due to the long-term effects of the pandemic, and with many projects still being put on hold, now is the perfect moment to make sure you’re taking full advantage of what is available.
MAKING A CLAIM
The tax incentive for a private business is received as a cash payment and, for publicly traded companies, it is a credit to be offset against outstanding taxes. Seasoned tax advisers with experience of SR&ED claims know what qualifies and what doesn’t, but companies must keep good records of time and expenditure to support claims.
Businesses can claim up to 18 months after the tax year in which the innovation took place, so there is a good chance that if you didn’t know about the scheme before, you could still claim substantial amounts retrospectively.
