There is no better way to fund research and development (R&D) than through the Scientific Research and Experimental Design (SR&ED) program. Billions of dollars are given out through SR&ED spread across more than 20,000 recipients every year. This allows Canadian-controlled private corporations and other companies to innovate, conduct world-class R&D, improve efficiencies, reduce operating costs, increase market share, and secure higher profits.
SR&ED is not your traditional R&D grant. It is provided in tax credits after the work is completed. This means a business must pre-finance the project themselves, recuperating eligible expenditures after their project is approved. SR&ED requires that the work it is funding be conducted wholly in Canada. That is the minimum requirement. If parts of your R&D project are completed outside Canada, it is not an SR&ED project.
The SR&ED program is not difficult to qualify for. An applicant must fill out the required forms and have the supporting documentation for their claim. The forms can be quite complex and detailed, so many companies typically have an SRED consultant to ensure everything is complete and structured correctly.
Let’s learn about how to fund R&D projects with SR&ED financing:
How Much Can You Receive Under SR&ED?
SR&ED tax incentives come in three forms – an income tax deduction, an investment tax credit (ITC), and a refund. Depending on your unique tax situation, you may have different options regarding how to use your financing. In some cases, financing can be applied to past tax returns. In other cases, it can be taken forward to future tax returns, although there are limitations. Work with your tax expert to determine what’s best for your company.
How much you can obtain in R&D funding depends on the company you are in and the province you’re applying from. The federal tax refund offered is up to 35%, with an additional provincial refund of up to 15% in most cases. This tax refund is calculated based on eligible expenditures, with an investment tax refund structured between refundable and non-refundable credits.
How Can I Use My SR&ED R&D Financing?
There is no requirement on how to use SR&ED financing. You can reinvest it back into R&D as many corporations do. You can apply it to other areas of your business and divert it into other investment sectors. It’s entirely up to the recipient. As this is not a typical grant with stipulations on where the amount is to be spent, SR&ED financing is an exercise in recouping funds already spent on research and development.
List of Qualifying SR&ED Projects
R&D can apply to many different industries and scenarios. The following are a few of the R&D situations that qualify for SR&ED financing.
- Developing a new manufacturing product.
- Developing a new manufacturing process.
- Developing new software for your business or a client.
- Improving existing products or processes.
- Projects to provide a competitive advantage routed in science or technology.
- Projects that develop innovative solutions to scientific or technological uncertainty.
- Projects to improve current technology.
Eligible R&D Expenditures
You can include project-related salaries, wages, materials, equipment leases, and overhead. Non-project-related costs cannot be included in the calculation. These expenditures must be documented.
As you go along with your R&D project, the more records you generate, the better. From the financial documents to timesheets to photographs, video, and any other documents you can generate day-to-day, these are all important in qualifying for SR&ED funding.
When Will You Receive Your SR&ED Funding?
After your SR&ED claim is received on the CRA’s end, assuming it’s approved, the funding is provided fairly quickly. In some instances, however, you may be asked to provide further information, your claim may be selected for review, or if other events prompt a delay, in rare instances, it may take up to 12 months before the amount is received.
Other Sources of SR&ED & R&D Funding
You can do other things to further reduce R&D costs that will not impact your SR&ED funding, including collaborating with some of Canada’s top research institutions or bringing on university students in partnership with post-secondary institutions.
- NSERC Engage Grants
- NSERC Applied Research and Development Grants
- NSERC Collaborative Research and Development Grants
- NSERC Industrial Research Assistance Program
- CIHR Industry-Partnered Collaborative Research Program
- Mitacs Accelerate Program
Ultimately, SR&ED is the best option for the funding eligible R&D projects. Furthermore, there is SR&ED financing that can assist in managing different costs for eligible businesses offered by different financial institutions and lenders across the country. R&D is expensive, and SR&ED is widely considered one of the better ways to fund those activities.
