The Scientific Research & Experimental Development (SR&ED) program aids small businesses and corporations advance innovation and research. Growth and innovation are necessary for a business to remain competitive at a regional and global level. R&D and innovation strategies, however, can prove to be very expensive, putting some businesses at a disadvantage if they do not have the budget or resources to chase their concepts.
In a way, the SR&ED tax credit is paying your business to be more creative and to think outside the box. It’s a program designed to stimulate Canadian-made innovation, and any business can apply it. It doesn’t matter what industry you’re from. If the project qualifies under SR&ED criteria, it’s approvable. This means where you wouldn’t have been creative in the past, perhaps due to budget constraints, you may be more inclined to be so.
Let’s learn how SR&ED can help your business grow.
Help with business innovation.
SR&ED will not wipe away the full costs of R&D, but it’s a massive help, potentially returning thousands and even millions of dollars depending on the project. SR&ED funding will help cover the initial expenses of studying a new scientific or technological concept for parties that want to go international and expand based on innovation.
SR&ED projects vary from developing and testing a new product to funding improvements in one’s manufacturing and distribution. It is a dynamic program that reimburses businesses using innovation to spur their expansion and efficiency. So long as the project is organized to target a scientific or technological uncertainty and that it is completed through a systematic investigation or search, there is a multitude of ways a business can benefit from SR&ED funding.
Help with business long-term growth.
There is near-unlimited potential to take the funding you receive through SR&ED claims and divert it back into your growth. From a long-term perspective, the innovation done through SR&ED projects can help keep your business competitive globally and be a gateway to record profitability, as so many organizations have discovered first-hand. This is a major financial resource for any Canadian business with an eye for innovation and a long-term outlook.
Help with small businesses.
A small business does not have the resources a large, multi-national corporation does. Through programs like SR&ED, it’s more possible to compete. Suppose your business has a better idea than a competitor, and it falls within the parameters of what constitutes an R&D project. In that case, this funding provides you with an advantage and the potential to create products and processes uniquely your own.
Help with foreign businesses.
A foreign-owned corporation can apply for SR&ED tax credits. However, the rates are less than if they were a CCPC. For example, while a CCPC may earn up to 35% in refundable ITCs, a non-CCPC would earn up to 15% in non-refundable ITCs on qualified expenditures. So while the application and claims process is the same, the result and the rate one receives and how it could be applied to their tax bill are different.
Help with business costs.
On qualifying SR&ED expenditures, businesses can receive a tax deduction. This even applies if the expenses are capital expenses. This will significantly reduce the cost of conducting research and development, reimbursing you for expenses incurred in the prior year. This allows businesses to reinvest those funds into their business and strengthen their bottom lines.
Investment tax credits (ITCs) reduce the amount of income taxes owing dollar for dollar. This can dramatically lower expenses and what’s owed on one’s tax bill at the end of the year. The SR&ED program is generous with how it gives out ITCs and can be as much as 35% of qualified SR&ED expenditures. That could mean a welcome cut into your tax bill.
Help with business taxes.
You can carry over deductions you do not need in the current tax year to later years. This provides businesses with some flexibility in choosing how to best maximize their SR&ED tax credits. For some, accepting an immediate tax credit will be their best option. Others may have another tax strategy to better balance their credits and lower research and development costs.
Let’s say you have ITCs from an SR&ED claim that you do not have a use for. You can carry them back three or 20 years, but you may not want to. Some businesses choose to convert unused and excess ITCs into a refund. This is only possible for Canadian-controlled private corporations (CCPC). For foreign-owned corporations, it is not.
