Innovation and tax credits in fire fighting
November 4, 2021 By Richard Hoy
From Canada’s west coast to the prairies, this year has been a particularly devastating year for wildfires. Public attitudes towards the environment have shifted dramatically and more people, have come to expect that wildfires will become a regular occurrence.
Our firefighters have always been an important part of our community and some businesses are looking at new ways to keep them better protected. Creating a role for private companies is crucial to ensuring that Canada is at the forefront of modern technology and we are seeing both new and augmented systems that can help firefighters to detect and track fires, and also to identify the fires that could cause the most damage.
Public-private partnerships are made even more attractive when you look at the various tax incentives available to companies driving innovation in Canada. Scientific Research & Experimental Development tax credits — or ‘SR&ED’ for short — are there for the taking. The reality, though, is that too often companies are developing technology but are allowing these incentives to go unclaimed.
What is SR&ED and how is it relevant in fire fighting?
SR&ED is a tax incentive administered by the Canada Revenue Agency (CRA). It is claimed by professionals in a wide range of industries and the benefits can sometimes be worth hundreds of thousands of dollars.
The type of work encountered by fire fighting professionals that could be eligible is varied. It ranges from advances in fire fighting agents, such as gels, wetting agents and protein foam to fire sensors, detection and also forced ventilation techniques in building structures.
Not all R&D qualifies for SR&ED tax incentives. Depending on the size of your organization or the budget of your innovation project, it may be worth speaking to a specialist tax advisor before making a claim. The good news is that SR&ED can be claimed for up to 18 months after the tax year in which the work took place.
If you are an enterprise working to drive innovation in fire fighting and perhaps developing products or equipment used in the home or by firefighters themselves, these are the things to consider if you think your work might quality:
- Assess whether or not the work you are doing will develop technical knowledge in the industry or work towards a common goal, such as tackling wildfires.
- Are there scientific or technological uncertainties in products you are looking to create?
- Every aspect of fire fighting is difficult but would other people deem the solution or product you’re creating to be obvious? If not, it could well qualify for SR&ED.
How innovative is our industry?
At its core, firefighters around the world have to be innovative, because it is an area which has to adapt to the challenges that face the modern world. The recently developed Canadian invention — the Multi-Purpose Device that allows firefighters to change from lowering to raising without changing hardware in a rope system — is a great example of a piece of technology that could be eligible for tax incentives.
When tackling wildfires, there have been drones developed that collect infrared fire data and images to show the extent of the problem and which areas need particular attention from those trying to control the blaze.
Figuring out how much these tax incentives are worth will depend on the structure of your organization, as well as the province in which you are based. In general though, you can claim up to 41.5 per cent of expenses directly attributed to innovation. This figure is made up of a combination of federal and provincial innovation credits.
The 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. Most expenses linked to the R&D you may be carrying out will attract tax incentives. This extends to materials, salaries, and other staff expenses, as well as third party contractor services.
Ultimately, SR&ED is one of the most generous tax incentives for innovation in the world and it is certainly justified that those working in some of the most challenging circumstances are given equipment that reflects the innovative technology that Canada produces.
Richard Hoy is President of specialist tax consultancy Catax Canada, based in Vancouver. You can reach him at Richard.Hoy@catax.com.
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