Continuous Improvement and SR&ED


We frequently encounter manufacturing companies that are significantly under claiming on their SR&ED tax credits. The biggest mistake we see is that many of these companies view their new product development efforts as the only area where SR&ED is occurring and forget to look at their manufacturing improvement efforts.
The methodologies of effective manufacturing process improvement, such as the Deming cycle or Six Sigma, often satisfy the requirements of SR&ED eligibility. Companies are quite surprised at how this can SR&ED eligibility can impact the real cost of their improvement projects.

Let’s look at an example: A manufacturing company uses a piece of equipment that has consumable wear inserts. During operation, these inserts are consumed (worn-out) and require monthly replacement. The company’s Manufacturing Engineer identifies a number of possible other materials or coatings designed to reduce the rate of wear on the insert but is uncertain how these other materials will perform in his application. The Engineer designs a test protocol to evaluate each candidate material in the actual machine, the maintenance department carries out the required insert changes at the prescribed interval and the machine operator monitors and records wear rates as the new inserts are being evaluated.

In this above example all the necessary criteria for the work to be SR&ED eligible are met. A portion of the Engineering, Maintenance and Machine operators’ time will be eligible for tax credits. Assuming the costs for this project included $20,000 labour and $5,000 the inserts, the company would be eligible for a tax credit of roughly $14,000.

For an assessment of whether your process improvement efforts qualify for SR&ED funding please contact Mobile Capital Network for a free consultation.