For businesses in British Columbia looking to fund their R&D initiatives, the SR&ED tax incentive program is a valuable source of financial support that provides reimbursement for eligible expenditures through tax credits. As a hotbed for technical innovation, many industries within BC can benefit from SR&ED, including technology and software development, biotech and pharmaceuticals, cleantech, telecommunications and more. The SR&ED program fosters innovation and helps Canada stay competitive globally, and knowing how to best utilize your SR&ED credits is crucial to maximize your benefits.
Below, we’ll take a closer look at some factors to keep in mind when filing your SR&ED claim. Read on to learn more!
Understand Eligibility Requirements
The scope of projects that are eligible for SR&ED is quite broad. In order to make the most of your filing, you must ensure that you can prove how and why your work is eligible. A brief summary of eligibility requirements is as follows:
Canadian-owned and operated businesses, corporations, partnerships, and individual proprietorships that are engaged in activities that seek to advance scientific or technological knowledge through systematic investigation and experimentation may be eligible. To qualify for the program, the project must address scientific or technological uncertainties and involve a process of hypothesis testing, experimentation, and problem-solving. Additionally, eligible expenditures, such as labour, materials, and overhead, should be incurred in pursuit of these activities.
Working with a qualified SR&ED consultant is one of the best ways to identify eligible activities and associated expenses. It is vital to document everything as thoroughly and accurately as possible to ensure you maximize your credits. This is best done by keeping detailed, contemporaneous records of your SR&ED-eligible projects. Insufficient documentation is the most significant cause of claims being rejected and subjected to an audit; the more diligent you are with your documentation, the better your odds of having a smooth filing. Sample documentation details include:
- Comprehensive project plans
- Lab notes
- Experimental results
- Financial records
- Accrued eligible expenses, and more.
Exploring Provincial Support:
British Columbia offers its own provincial incentives for R&D and innovation. Familiarize yourself with these incentives, such as programs offered by the British Columbia Innovation Council. This can complement your overall financial support for innovation and extend your runway.
Optimizing Your Claim
When preparing your SR&ED claim, it’s vital to include all eligible expenditures. This includes salaries, materials consumed, subcontractor payments, and overhead directly linked to SR&ED activities. Accurate calculations of these costs can maximize your credits, and many businesses accidentally shortchange themselves by neglecting to claim eligible expenditures.
Be Audit Ready
While many associate an SR&ED audit with a sign of misdoing or fraudulent activity, the simple reality is the CRA will inevitably audit almost all claimants at some point if they claim 3+ years to maintain the integrity and objectivity of the program. By maintaining thorough documentation, as mentioned above, you can expedite the audit process and avoid additional headaches that could cause further delays in receiving your funds.
If you’ve had an SR&ED claim audited in the past, use feedback from the CRA as an opportunity for ongoing improvement in your R&D activities documentation and apply the lessons learned to improve future claims.
Strategic Planning with SR&ED Financing
When integrated into your overall funding strategy, financing your earned SR&ED credits can help you continuously fuel your R&D initiatives throughout the year. Rather than wait for an annual lump-sum refund from the CRA, SR&ED financing enables you to leverage your earned SR&ED tax credits on your schedule, enabling a funding timeline that suits your cash burn needs.
Bridging the Cash Gap
Easly is proud to be a trusted source of financing for businesses that qualify for SR&ED tax refunds. Financing your credits with a firm like Easly is a reliable way to get the capital you need without giving up valuable equity and delaying R&D efforts.
Our financing solutions are easy to apply for, with funding becoming available in as little as two weeks from application. With the help of our non-dilutive capital, you can focus on development and growth without the stress of approaching the end of your runway.
To learn more about the role of SR&ED financing in your company’s capital-raising efforts, contact Easly today!