For Canadian business owners in need of capital for research and development (R&D), a wealth of options exist. Several funding opportunities make pursuing groundbreaking research highly rewarding, such as the Scientific Research and Experimental Development (SR&ED) tax incentive program. Find out how conducting R&D in Canada pays off for many pioneering companies across the country.
What is the SR&ED Program?
Governed by the Canada Revenue Agency (CRA), the SR&ED program motivates large and small businesses across all industries to perform R&D in Canada. It provides incentives that help companies pay for eligible projects related to advancing scientific or technological knowledge. Not only do these tax credits help fund R&D efforts, but they may also help businesses effectively manage cash flow and conduct long-term financial planning.
Benefits of the SR&ED Program
As the largest source of government-funded financial support for R&D, the SR&ED initiative is exceptionally lucrative for Canadian businesses. Each year, the program issues over $3 billion in tax incentives to more than 20,000 claimants. If your company is searching for funding opportunities to fuel innovation, consider the following advantages of the SR&ED program:
Lucrative Tax Incentives
The SR&ED program offers two main incentives to Canadian-controlled private corporations that provide distinct financial benefits — an investment tax credit (ITC) on the first $3M of eligible expenditure and a smaller ITC plus a non-refundable tax credit on the following $2M. The first option enables companies to claim their eligible expenses and receive a refund on up to 60% of that amount. Businesses use the second choice, the non-refundable tax credit, to minimize their income tax payable.
The Government considers several R&D activities and expenses to be eligible for tax credits, making the SR&ED program available to many Canadian businesses. Qualifying work includes applied research, basic research, experimental development, and other activities that support these pursuits.
Overhead costs, materials, subcontractor fees, and wages for employees involved with the project are all eligible costs under the SR&ED program. In some cases, incentives may also cover salaries for SR&ED work performed abroad. Businesses cannot receive tax credits for capital expenses, but they can deduct money from their revenue as a depreciation expenditure.
Credits Are Not Dependant on Project Success
Another significant benefit of the SR&ED program is that incentives are not given based on the success of R&D projects. Since the primary goal is to stimulate innovation in Canada, the Government is more concerned with how your activities can benefit the country and advance the knowledge base.
Support Across Industries
Many claimants are small enterprises, Canadian-controlled private corporations (CCPCs), trusts, and individuals. Additionally, funding from SR&ED tax incentives helps advance scientific and technological understanding, positively affecting global industries and communities.
Some of the sectors that SR&ED-supported projects enhance include:
- Automotive and aerospace
- Clean energy
Funding for Foreign Companies
Besides Canadian organizations, this Government initiative also extends financial assistance to some foreign businesses. Canadian subsidiaries operating under a foreign parent organization and conducting eligible R&D work can deduct qualifying expenses and claim a 15% tax credit. Some foreign corporations also choose to branch out in Canada to receive CCPC benefits.
Receiving Province-Specific R&D Funding
Many Canadian provinces and territories also offer R&D tax credits that businesses can use in addition to federal support from the SR&ED program. The credit rates for R&D tax incentives vary in each province, with the highest being 30% for CCPCs in Quebec and the lowest being 3.5% for corporations in Ontario. The only provinces and territories that currently offer no additional tax incentives to the federally distributed SR&ED credits are the Northwest Territories, Nunavut, and Prince Edward Island.
Receive SR&ED Financing from Easly
While conducting R&D in Canada pays off for many native and foreign businesses, one challenge with the program is that tax refunds are only issued after they’re claimed during the annual tax season. Most companies would be advantaged if they had access to that capital sooner rather than waiting for a payment from the CRA. Luckily for these companies, assistance is available from SR&ED financing firms like Easly.
At Easly, we provide the ideal solution through our Capital-as-a-Service platform. Since the SR&ED program follows a specific structure, we can estimate the refund a business will receive from the Government and offer non-dilutive advances any time throughout the year, providing access to funds up to 18 months before they would otherwise be received.
Get started today to finance your SR&ED tax credits.