A significant financing source for trailblazing Canadian companies, the CRA (SR&ED) program, uses tax incentives to fund research and development (R&D) in businesses of all sizes and across all industry sectors. It’s one of the most useful resources for Canadian companies looking to innovate. But it can also be complicated to navigate, which may be why the program is underutilized. If you’ve heard of the SR&ED program but aren’t sure whether it makes sense for your firm, read on to find out how the CRA SR&ED tax incentive program can help you grow your small business and why it makes sense to apply today.
Four Reasons Your Small Business Should Apply for the CRA SR&ED Program
What are the benefits of the SR&ED tax incentive?
Innovation drives business growth, and the CRA SR&ED program drives innovation. The tax incentive reimburses a large portion of the costs incurred for effective R&D, making it easier to build, test, and launch the products of the future. You may find that your new products rapidly transform your domestic Canadian business into a multinational one, as you’re able to expand your footprint into new markets.
Not only can you build a competitive advantage through new product offerings, but the SR&ED program can also help you fund advancements in production and distribution methods. For example, a new manufacturing technology that speeds up production could help you more rapidly fulfill orders than your competitors. Such improvements aren’t only a source of competitive advantage for your firm, they could become products or services in their own right and create a new revenue stream.
Too often, small businesses struggle with breaking even, much less scaling up. By using the CRA SR&ED program to develop new products and processes, you may be able to grow your profits and your market share exponentially, rather than incrementally. Building sustainable revenue exponentially can help you gain market share from your competitors. Explosive growth fueled by innovation may even help you capture the majority share of your industry’s market.
Small businesses no longer have to rely on venture capitalist debt as their only financing solution. With Easly’s advances, small business owners can finance their new concept while retaining their equity. Learn more on how SR&ED financing works here.
Get Started Using the SR&ED Tax Incentive | First-Time Claimant Advisory Service
You can take the first step by filing a claim or requesting a Pre-Claim Consultation from the CRA. Once you’ve filed a claim for the first-time, the CRA may contact you to participate in its First-Time Claimant Advisory Service. This service is a free in-person educational session that allows you to meet with CRA officials to understand better how the SR&ED program might meet your unique business needs.
At this session, you’ll learn about the types of projects and related expenditures eligible for reimbursement through the SR&ED program, the supporting documentation you’ll need to file, and how you can complete and submit claims. The session should take no more than half a day, but it will give you an in-depth look at the entire process and allow you to ask any questions you might have.
Tax Benefits of SR&ED for Small Businesses
If the CRA finds that your business is eligible for an SR&ED tax incentive, the type of organization your business is will help determine the benefit you’ll receive. If you own a Canadian-controlled corporation, you can receive a refundable investment tax credit (ITC) of 35% on qualifying expenditures of up to $3 million or a non-refundable ITC of 15% on qualifying expenses over $3 million. Depending on the location of your business, you may be eligible for an additional ITC on all qualifying expenditures. Discover your provincial SR&ED credit amount by region here.
Certain Canadian corporations may even qualify for a refundable ITC on expenditures over $3 million. Non-Canadian controlled corporations may be eligible for a non-refundable ITC, while individuals and trusts may be entitled to a refundable ITC. The CRA calculates both at a rate of 15% on qualified expenditures.
You can receive these tax credits to offset the costs of applied or basic research, experimental development, or any design, engineering, or operations research that supports these activities. As not every idea is a winner, your claim doesn’t need to include evidence of a successful new product or process — just proof of what you spent researching or testing the idea.
You can also carry over any credit you don’t want to use immediately to subsequent years. As long as you carry out these activities in Canada and submit a qualified claim along with the requisite documentation, your small business could receive a substantial R&D boost.
Why You Shouldn’t Wait for the CRA to Issue Your SR&ED Refund
Once you’ve received your refund notification, you could wait months to receive your refund. The CRA must make eligibility determinations using tax records and other supporting documentation — a process lengthened by the pandemic. That doesn’t help you today. R&D requires money and time. It could take you a year to receive your refund and another year to finish vetting your idea. During that period, your competitors could bring a product similar to your concept to market. You could lose out on an ideal time to test or launch your new offering — and with it, an opportunity to gain market share.
To fuel your R&D, you need positive cash flow. A refundable ITC can provide that, but, only if you have ready access to these funds. The big businesses in your industry often have an abundance of cash available for their R&D efforts. If you hope to compete, you need a consistently well-funded R&D operation. You can’t afford to wait months for the next cash infusion.
How You Can Get Your SR&ED Funding Quickly
If you qualify for an SR&ED refund, Easly can help you access those funds quickly. We provide SR&ED financing to successful claimants, which is repaid from their refund proceeds. Our financing is non-dilutive, so you don’t have to sell equity to gain the capital you need. You could receive your first SR&ED advance within as little as two weeks to help move your business’ R&D forward.
Having provided over $37 million in funding to over 80 Canadian companies, we understand how vital capital is to your growth. We’ll work to get you approved quickly and easily so that you can plan, design, and test new products and processes. Contact us today so we can answer any questions you have about the CRA SR&ED tax incentive program or financing!