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As 2023 winds down, innovative businesses across Canada are planning ahead to ensure they have reliable sources of capital in place to keep their development moving forward. The Scientific Research and Experimental Development (SR&ED) program is a powerful tool that helps Canadian companies fund research and development (R&D) initiatives. SR&ED provides financial incentives in the form of refundable and non-refundable tax credits to stimulate innovation within Canada and can be a valuable addition to your capital stack.
Below, we’ll take a closer look at some of the intricacies of the SR&ED program, as well as the benefits of partnering with an SR&ED financing provider like Easly. Read on to learn more.
SR&ED BASICS: How it Works
Eligibility
In order to access the benefits of the SR&ED program, you must prove that your project meets the eligibility criteria. Canadian-owned businesses involved in eligible R&D activities (more on that in a moment), which encompass scientific research, experimental development, and certain support activities, are able to utilize SR&ED. Eligible activities must meet the following criteria:
Advancement of Knowledge
Your project must aim to achieve scientific or technological advancement where new knowledge is needed to determine if a given result can be achieved. If the current scientific or technological knowledge base is insufficient to provide answers to your hypothesis, you’re on your way to SR&ED eligibility.
Systematic Investigation
Your R&D activities must attempt to achieve your intended outcome using a systematic approach and structure with a clear plan and objective. There must be a clear hypothesis and plan of execution to test that hypothesis in order for the project to be eligible for SR&ED.
Technological Uncertainty
Your project must aim to address an existing technological uncertainty, meaning there is no clear solution to the problem at hand. If you can resolve your hypothesis through a standard investigation that doesn’t require experimental testing, it’s likely that the project won’t be eligible for SR&ED.
You can view the full list of SR&ED eligibility criteria from the Government of Canada here.
Filing and What to Expect
Along with ensuring your projects are eligible within the criteria above, you’ll also want to ensure that you have thorough records and documentation that relay why your business/operations are applicable within the scope of the SR&ED Program guidelines. Keeping comprehensive records that clearly detail key factors like project plans, lab notes, experimental results, as well as all related financial records is crucial to having your filing accepted and avoiding time-consuming audits.
Once you determine that your project is eligible for SR&ED, your team will need to prepare the claim as diligently as possible. As we mentioned above, documentation and record keeping are essential for success, and your claim should clearly detail the technical descriptions for each project, highlight the scientific or technical content of your efforts, and reveal the challenges you’ve tackled through your experimentation. Financial documentation relating to all eligible expenditures, including salaries, materials consumed, and subcontractor payments directly related to SR&ED activities, should also be included in your claim.
Accuracy is integral to having your claim accepted, and many businesses prefer to utilize the help of an experienced SR&ED consultant to make sure their claim is as comprehensive and accurate as possible.
Once your SR&ED claim is vetted and approved by the CRA, you’ll receive the approved benefits as calculated from the filing. Non-refundable SR&ED credits will result in a deduction in taxes owing, and refundable SR&ED credits will result in a refund paid directly to the business.
Why Use SR&ED?
Although participating in the SR&ED program can be a time-consuming endeavour (again, this is why many companies rely on trusted professionals to help them with their claims), the financial support the program provides is substantial, making the time and effort well worth it.
R&D can be costly, and securing funding can be extremely difficult, especially in today’s tight credit environment. The SR&ED program offers substantial financial support, making innovation and technological advancement more accessible and affordable for those looking to innovate.
Financing Your Earned SR&ED Credits
SR&ED refunds are only issued once per year and can take a significant amount of time to receive. If you need financial liquidity today to fund your initiatives, Easly is here to help by providing advances on your earned SR&ED credits.
We are proud to offer flexible, reliable, non-dilutive capital in a founder-friendly manner that is cash flow positive and does not require personal guarantees. Our process is built for speed, and we can get successful applications funded within two weeks.
To learn more about the role SR&ED financing can play in advancing your operations, contact Easly today!
