Thousands of small businesses fund innovation projects using Canada’s Scientific Research & Experimental Development (SR&ED) program. A common obstacle for a small business that wants to conduct R&D is, “How do we fund this?” SR&ED is a billion-dollar CRA-administrated program offering funding support you do not need to pay back in tax credits. There’s no upper limit, either. For a small business, that’s a massive source of R&D funding.
In the small ecosystem of ways to fund R&D and innovation, the SR&ED program is by far the biggest source. The biggest corporations tap into SR&ED funding for their innovation projects. There’s no reason your small business shouldn’t, either. Level yourself up with the competition and use the resources they’re using to motivate your success.
The philosophy behind the SR&ED program is that it’s to strengthen Canada-centric innovation and the national economy. At a more micro level, for a small business, you have funding to help you compete locally, domestically, and internationally. Many multinational companies based in Canada use SR&ED tax credits in this way.
Let’s learn more about what SR&ED can do for your small business.
Do Your R&D Without a Partner
When you tap into the reserves of R&D funding in the SR&ED program, it may allow your business to do research without involving partners you don’t want or having to arrange for traditional borrowing that you may not be able to afford. After all, why take a loan to fund research when free tax credits are waiting to be tapped?
Reduce Your Tax Bill and Return Money to Your Accounts
The SR&ED tax credit allows you to reduce your tax bill and potentially have a tax refund issued in some cases. For a business not yet profitable or a newly established corporation, SR&ED funding can help you explore innovation without eating into your budget more than necessary.
Reduce Taxes with SR&ED Credits in Future Years
SR&ED credits are either a deduction against income or a non-refundable or refundable investment tax credit (ITC). In many scenarios, the deductions provided under the SR&ED program can be carried over into future years. As a small business owner, you can maximize your tax situation depending on whether this year is the best year to use the credits you’re awarded.
Cover Up to 35% of Eligible R&D Expenses
Up to 35% of one’s R&D expenses can be covered with the tax credits received from SR&ED funding. That’s federal. Add to that what you might have available in tax credits from prior years in addition to provincial R&D financing, and projects can be very well financed. The SR&ED program is considered one of the most generous in the country regarding innovation.
Be Reimbursed for Salaries, Contracts, and More
SR&ED allowable expenditures include salaries and wages for employees directly engaged with an SR&ED-eligible project, materials consumed, contracts, third-party payments, and certain overhead expenditures. If approved for SR&ED tax credits, you can cover many costs, reimbursing you for expenses that can get quite high throughout a project.
There Is No Cap on SR&ED Funding
SR&ED funding does not have a cap. While the percentage covered under SR&ED funding changes depending on what kind of corporation you are and the claimable amount, there’s no maximum amount you can receive in tax credits. Unlike similar grants and programs, fund the entire project without worrying about hitting a funding cap.
Apply for a Wide Range of R&D Work
You don’t need to be a tech company to apply for SR&ED funding. You can apply for any basic research, applied research, or experimental development. Eligible projects that regularly use SR&ED include those in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.
Keep Your R&D Work in Canada
A big component of SR&ED financing is for the work to be conducted in Canada. If you’re a business owner that needs a little more incentive to keep operations within Canada, this can be it. There are also provincial SR&ED programs that you can compare and contrast, potentially gaining even more financial support depending on where you situate your R&D in Canada.
Build, Test, and Launch Products
SR&ED offers some massive advantages to growing small businesses. It can remove most financial limitations, allowing entrepreneurs to build, test, and launch products, services, processes, and more. The sky’s the limit. Pursue innovation and find new ways to create income streams for your company.
Future-Proof Your Business
When you have permission to create and develop R&D projects with SR&ED financial support, there’s a tremendous opportunity to future-proof your business by finding new products that are uniquely yours.
While SR&ED does not fund marketing or promotions, the result of an SR&ED project can provide a company with all they need to take their findings, register them, and begin innovating the marketplace with something new and singularly belonging to your brand.
