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As the biotechnology industry continues to grow, so does the need for innovation. Countries across the globe grapple with today’s challenges and face emerging concerns in public health, the environment, and other critical issues daily. Accordingly, biotech companies are more important than ever. These companies are crucial to the success of increasingly tech-driven economies here in Canada and around the world. The federal government is committed to funding innovation within the biotechnology sector, which is partly done through the Scientific Research & Experimental Development (SR&ED) tax credit program. This research and development tax credit for Canada’s tech sector encourages scientific discovery and technological advancements that benefit the country.
The Need for Government R&D Funding in Biotech
Research and development (R&D) are essential for biotech firms, enabling them to remain at the cutting-edge of their industry. However, these activities are costly and require investment over extended periods, potentially without revenue generation. Consider, for example, pharmaceutical development. According to research from BIOTECanada, the average new medication costs $1 billion to develop from discovery to approval and may take up to 15 years to bring to market. This level of investment may prevent startups and even well-established small and mid-sized enterprises from engaging in R&D.
Despite this barrier, more than half of all biotechnology firms spent more than $1 million on R&D in 2018. Of these, 74% projected expenditure of $1 million or more in 2021. Even with this significant investment, 57% of organizations surveyed reported that access to the capital required for R&D was a considerable hurdle.
Just as importantly, research from the same report reveals that every dollar spent by the biotechnology industry generates a GDP multiplier of 1.21 in value-added to the national economy. With this in mind, it’s easy to understand why the federal government considers a research and development tax credit for Canada’s biotech companies to be a wise investment.
Encouraging Biotech Advancements with SR&ED Tax Credits
The SR&ED program does more than provide essential funding. The Canadian Revenue Agency (CRA) also strives to ensure this funding is adequate, accessible, and utilized by as many companies as possible. A few of the ways the tax credit encourages innovation in biotechnology include:
No Requirement for Success or Profit
Not all R&D work leads to the creation of a successful product or process. However, failure can be just as critical as success, allowing innovators to identify unexpected challenges, adjust methodology, and make changes that enable future achievement. At the same time, successful projects may not yield commercial success.
This is why the SR&ED program does not make funding contingent on the success of your R&D work. The freedom to fail is vital for biotechnology companies, which face exceptionally high R&D costs. With the opportunity to learn and discover without penalties for failed hypotheses or lack of profit, these organizations can continue work that may one day revolutionize healthcare, agriculture, environmental protection, manufacturing, and more.
Open to a Wide Range of Sectors and Applicants
Any company seeking technological or scientific advancement may benefit from the SR&ED tax credit, regardless of their industry or sector. This opens the door to a wide range of biotechnology companies, who operate in diverse areas such as:
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- Pharmaceuticals
- Medical supplies and equipment
- Biotechnology manufacturing
- Healthcare information technology
- Biological products
- Agriculture
- Environmental work
- Food science
- And more…
The program is also open to businesses of all sizes and diverse structures, including Canadian-owned and other corporations, partnerships, trusts, and individual proprietorships. This accommodates the full spectrum of the biotech industry, where smaller organizations are standard, and just 10% of companies employ more than 100 workers.
Eligible for Third-Party Contractor Costs
Unlike grants, which provide upfront funding for eligible expenses, the SR&ED program offers reimbursement for expenses already incurred. While this can slow access to essential capital, the program also accepts expenditures in a wide variety of areas. These include the wages and salaries for primary research R&D work carried out by your team, plus:
- Engineering
- Design
- Operations and psychological research
- Mathematical analysis
- Computer programming
- Testing
- Materials
Staffing for R&D work and these related tasks can be a challenge in the biotechnology industry due to an ongoing talent deficit. Fortunately, payments to third-party contractors for eligible services may also be submitted with your SR&ED claim. This allows businesses to acquire the services they need and the funding necessary to make the work affordable.
May Be Combined with Other Forms of Government Funding
The government’s commitment to R&D extends beyond the SR&ED program and includes numerous funding programs at the federal and provincial levels. Prominent among these is the Industrial Research Assistance Program (IRAP), which offers generous funding to qualifying technological companies. Eligible companies may apply for IRAP grants and SR&ED tax credits to maximize funding.
While SR&ED and IRAP funding can not be stacked for duplicate reimbursement, these programs can be strategically used to fund different projects and expenditures. Biotechnology companies should confirm the limitations and requirements of any funding opportunities to determine which may be used concurrently.
Capital Financing for the Biotech Industry
While SR&ED tax credits provide an invaluable source of capital for biotech R&D, claims may only be submitted at the end of the tax year, and refunds are slow to arrive. Advancing your SR&ED refund with Easly is a great way to access capital throughout the year to help fund your R&D efforts and growth. Learn more about our SR&ED financing and how you can receive a quarterly advance in as little as 72 hours.
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