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Looking for new ways to support your Research and Development (R&D) initiatives? As businesses across Canada seek to get a strong start on Q2 of 2023, being aware of provincial and federal tax incentives is essential. From BC, Alberta, Quebec and Ontario, there are specific initiatives to incentivize innovation that are overseen by federal and provincial governments. Take advantage of these initiatives to expand your capital stack and foster long-term growth.
As Canada’s largest source of financial support for R&D, the Scientific Research and Experimental Development (SR&ED) Program helps tens of thousands of Canadian businesses pursue innovation by providing over $3 billion in tax credits annually. Knowing how to make the most of government incentives can help carry your operations and allow you to focus on what matters most for innovation. Below, we’ll take a look at some of the core points to know about SR&ED to ensure successful participation in the program, as well as the benefits of partnering with a Capital-as-a-Service (CaaS) company like Easly. Read on to learn more!
What is the Scientific Research and Experimental Development Program?
The Scientific Research and Experimental Development (SR&ED) program is designed to help fuel continued Canadian-based technological innovation by offsetting some of the costs of research and development. Since the program was first started 40 years ago, SR&ED has evolved into the largest source of R&D support by the government, with claimants receiving tax credits for eligible activities that advance scientific or technological knowledge through experimentation and/or analysis. In 2021 alone, the SR&ED program saw a large increase in its disbursement value, handing out over $4 Billion in tax credits.
Best of all, SR&ED isn’t limited to successful or profit-generating projects (see other common misconceptions here). The SR&ED program provides tax credits for certain R&D expenditures, including salaries, materials consumed or rendered unusable, and equipment that companies can claim during tax season. These credits then provide a refund or, in some cases, a deduction in income taxes payable.
In essence, the SR&ED program shows that the Canadian Government recognizes the value, as well as the risk, associated with new development and advancements and seeks to stimulate continued growth by reducing some of the financial burden incurred by companies in the process.
What Qualifies
One of the most common points of confusion regarding SR&ED is that it is limited solely to tech-based businesses. While this is certainly understandable given the name of the program, the SR&ED program is far more broad and far-reaching than businesses may assume. The core purpose of SR&ED is to fund valuable research and development, even for applicants that exist outside of the direct technological sphere. Computer programming, agriculture, entertainment, biotech, clean technology, and manufacturing are among the many industries eligible for the SR&ED program. In addition to a broader acceptance as to what constitutes R&D, business owners can often be surprised to find what counts as eligible expenditures, including:
- Salaries
- Contractor fees
- Materials consumed or rendered unusable
- Overhead
What Doesn’t Qualify?
Despite the SR&ED program’s relatively broad list of eligible expenditures, there are, of course, several different activities that do not qualify. In order to qualify, expenditures must fit into one of the three main categories for SR&ED support:
Basic research: work undertaken to advance scientific knowledge but without a specific application in view.
Applied research: research or development designed to increase industry knowledge with a specific practical application in view.
Experimental development: R&D designed to promote technology to create new or improve existing materials, devices, products or processes.
Non-qualifiable aspects include:
- Standard R&D costs like testing other products
- Sales and/or marketing
- Standard business administrative costs
- Routine costs for buildings, equipment, business licenses, and more
Covering the Gap Between Capital Outlay and Refund
Another critical aspect of the SR&ED program that businesses may not be aware of when they submit their first claim is that, even once it’s approved, you will likely have a waiting period before you receive your capital. This delay can range from weeks to months without further CRA review, but those subjected to an audit could find themselves waiting as long as six months to receive funding.
One of the best ways to overcome this gap is to utilize a non-dilutive funding source that gives you the ability to advance your refund and receive capital within days. With Easly, your advance is based on accrual, so you can receive capital in-year by advancing your accrued credits. With over $130 million in capital deployed to customers spanning sectors that include aerospace and defence, computer & IT, media, healthcare and more, Easly has the funds you need to keep your R&D initiatives rolling with minimal delays. Once your application is approved, you can receive your first advance in as little as 48.
At Easly, we’re proud to support continued innovation across Canada. Learn more about the role Easly’s SR&ED refund financing can play in your company’s capital-raising efforts by contacting Easly today!
