.png)
.png)
.png)
Canadian businesses looking for financial support for their R&D efforts can benefit from the Scientific Research and Development (SR&ED) program, an initiative designed to encourage domestic innovation and scientific progress. As the Government of Canada’s largest financial incentive for R&D, SR&ED plays a critical role in keeping Canada competitive on the global stage.
If your company is conducting R&D, knowing the eligibility criteria of the SR&ED program will help ensure you get the most out of this valuable government initiative.
SR&ED BASICS
The SR&ED program, administered by the Canada Revenue Agency (CRA), is designed to encourage and reward Canadian businesses that are actively conducting research and development domestically. The Government of Canada recognizes that research and development is often costly, with uncertain returns, and thus offers tax credits through the SR&ED program as a way of helping to offset some of the financial burden on businesses. Depending on certain criteria, companies can earn non-refundable tax credits that can be used to offset taxes owed or refundable tax credits that provide a cash refund even if the company is pre-revenue. Companies that earn SR&ED credits can claim them annually with their taxes. They should ensure their documentation is as accurate as possible to receive the maximum benefit and avoid being subjected to an audit. For that reason, many companies opt to work with expert consultants who specialize in the SR&ED program.
Financing your tax credits with a trusted SR&ED financing provider like Easly can be a strategic way to improve cash flow by leveraging earned tax credits during the year rather than waiting for an annual lump sum — access cash on your timeline with SR&ED financing.
ELIGIBILITY CRITERIA
In order for expenses to qualify for the SR&ED program, they must adhere to specific government-mandated criteria, which include:
1. Technological Advancement or Advancement of Scientific Knowledge
Claimed R&D activities undertaken by the business must aim to either advance the scientific knowledge base or achieve technological advancement. You’ll know if your project counts as an “advancement” if new knowledge is needed to test your hypothesis.
2. Scientific or Technological Uncertainty
Eligible projects must explore scientific or technological uncertainties through systematic investigation or experimentation. Again, new knowledge is needed to overcome the uncertainty – notice the theme here.
3. Systematic Approach
SR&ED claimants must demonstrate that they followed a systematic approach involving the formulation of hypotheses, experimentation, analysis of results, and iterative processes to attain desired outcomes.
It is worth noting that your project does not need to be successful to qualify for SR&ED. The program recognizes that even “failures” have value in terms of advancing our scientific or technological understanding and, therefore, accepts claims from projects that may or may not succeed.
4. Documentation
Businesses filing SR&ED claims must maintain accurate and robust documentation outlining the nature of scientific uncertainties, the approaches taken, the costs involved, and the results obtained during R&D activities. Failure to provide adequate documentation is one of the main reasons claims are audited. You must be able to demonstrate how your project results in scientific or technological advancement and present lab notes, experimental research results, and more to prove your case.
SR&ED TIP: CONSIDER A CONSULTANT
For those busy with R&D initiatives, it is often advantageous to partner with a consultant to ensure you get the most out of filing your SR&ED claim. Experienced consultants know how to strengthen your claim by including key details and putting systems in place to make sure you capture all relevant documentation. Consultants can also aid with the complexities of utilizing multiple government incentive programs like IRAP and IDMTC (where applicable) along with SR&ED. They can ensure you get the most out of all programs you’re eligible for. Trusting a professional removes ambiguity and sets you up for success.
FINANCING YOUR SR&ED REFUND
Given that SR&ED claims can only be made once a year, companies often face substantial gaps between initiating SR&ED-eligible work and receiving their cash refund. This annual disbursement results in lumpy cash flow, which is not ideal for a growing business.
Easly is a committed supporter of homegrown Canadian R&D initiatives and is proud to partner with companies that earn refundable SR&ED credits. Easly Advances enable companies to tap into their earned tax credits to secure funding throughout the year. With a free and simple application and streamlined approval process, Easly can get businesses the capital they need to maintain momentum.
When it comes to sourcing capital, Easly understands the importance of trust and reliability. Partner with us to access founder-friendly capital on a timeline that suits your needs.
Discover more about leveraging your SR&ED tax credits with Easly by reaching out to our financing experts today!
