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SR&ED Financing

The Scientific Research and Experimental Development (SR&ED) tax incentive program is designed to encourage Canadian businesses to conduct research and development (R&D) in Canada. The program is the largest source of government-funded financial support for R&D. Claimants receive refundable or non-refundable tax credits for the cost of eligible activities that seek scientific or technological advancement through experimentation or analysis. Each year, the SR&ED program provides more than $3 billion in tax credits to approximately 20,000 claimants. About half of those are refundable tax credits, meaning companies receive a cash payment from the CRA.

If your company is conducting R&D in Canada, you may be eligible to receive a significant refund from the CRA on all SR&ED-qualified expenditures, including salaries, subcontractor fees and consumables. Claims do not depend on the success of a company’s endeavours. Instead, tax credits are provided for eligible SR&ED projects regardless of the outcome. These refunds play an essential role in supporting R&D activities in Canada.

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What is SR&ED Tax Credit Financing?

Canadian businesses conducting eligible R&D work earn refundable SR&ED tax credits as they spend on a wide range of eligible expenditures. They can then claim these R&D tax credits annually by submitting a form to the CRA. The CRA review process can take a few months, after which, if the claim is successful, a cash refund will be issued to the company.

A lump sum annual refund is helpful but it doesn’t address the ongoing cash burn needs of a growing company. This is where Easly’s SR&ED financing can help.

Easly SR&ED Advances allow companies to use their earned SR&ED tax credits to secure non-dilutive working capital throughout the year instead of waiting months for the CRA refund. Easly provides advanced based on earned credits – this means you can draw down multiple times a year as you earn more credits, creating an optimal cash flow solution.

SR&ED financing is more than just a source of non-dilutive capital; it’s a strategic financial tool that empowers you to take control of your cash flow.

Which Companies Qualify for SR&ED Tax Credits? 

SR&ED tax credits are available to companies that operate in Canada and undertake eligible research and development projects. This includes:

  • Canadian-controlled private corporations (CCPCs)
  • Other corporations
  • Individual proprietorships
  • Partnerships
  • Trusts

Funds allocated by these entities for R&D must be spent within Canada. This tax credit for research and development helps enhance the country’s innovation strategy, strengthens provincial and federal economies, and ensures Canada remains competitive in domestic and global markets.

If you are new to the SR&ED program and would like to learn more about it, we can connect you with our trusted network of SR&ED consultants.

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How to Determine SR&ED Eligibility

Not all R&D is eligible for the SR&ED program. There must be scientific or technological uncertainty involved in achieving the objective. This uncertainty must be approached with a systematic investigation that identifies a problem. The investigation must also formulate an objective and hypothesis and devise a plan of action. Finally, an experimental methodology or analytical framework must be used to test the theory.

SR&ED work falls into one of these three categories:

  • Basic research - work undertaken to advance scientific knowledge without a specific practical application in view.
  • Applied research - work undertaken to increase scientific knowledge with a specific practical application in view.
  • Experimental development - work undertaken to promote technology to create new or improve existing materials, devices, products or processes.

The following types of work are not generally considered SR&ED eligible:

  • Market research or sales promotion
  • Quality control and routine testing
  • Research in the social sciences or the humanities
  • Prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
  • The commercial production of new or improved material, device or product
  • Style changes

Other work that directly supports SR&ED can also qualify as eligible expenditures, including engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.

Your R&D efforts don’t have to be successful to meet eligibility requirements. All that is necessary is to undertake R&D in science or technology to achieve technological advancement or advance scientific knowledge.

Best Practices for Submitting a Successful SR&ED Claim

If you receive advances on your SR&ED refund, following best practices for submitting a successful SR&ED claim helps ensure funds will be available to repay your loan and avoid additional expenses. Successful claimants typically follow these simple steps.

Keep all contemporaneous documentation

Notebooks, emails, whiteboard pictures, and meeting minutes can all be very useful in defending your work. Establish a system of tracking and storing this information as early as possible. This is especially important if you choose the traditional method for determining eligible expenditures rather than the proxy method, as each amount claimed must be noted and justified.

Establish the technological uncertainty and your systematic investigation

The purpose of the SR&ED program is to incentivize activities that risk commercial failure. The CRA is less concerned with your commercial achievement and more focused on how you tried to investigate a shortcoming in the current knowledge base systematically.

Timesheets are key

The majority of expenses claimed are usually salaries associated with the SR&ED undertaking. Use automated time-tracking tools to account for time spent on specific projects. This can save you time when you prepare your claim.

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