Set Yourself Up for Success: Getting a SR&ED Tax Break Can Support Long-Term Business Growth and Innovation

January 11, 2021

Set Yourself Up for Success: Getting a SR&ED Tax Break Can Support Long-Term Business Growth and Innovation

Synopsis
4 Minute Read

Set Yourself Up for Success: Getting a SR&ED Tax Break Can Support Long-Term Business Growth and Innovation

Partner, SR&ED

One of the primary challenges that forward-looking companies face is the number of lost opportunities that come from not having enough funds to pursue the development of new technologies. However, with changes to Canada’s Scientific Research and Experimental Development (SR&ED) tax credit, more and more established and growth-staged companies can pursue ongoing scientific research and experiential development. By reducing costs by up to 64 percent, the credit gives companies already invested in SR&ED the freedom to tackle innovation and visionary efforts in a deep and sustained way that they might not otherwise be able to afford or develop locally.

Changes to SR&ED are opening up the innovation Ecosystem

The Canadian federal government has made some recent changes to SR&ED that are poised to benefit to the innovation landscape in Canada.

  • Before March 2019, there were two different tiers for private Canadian companies applying for SR&ED:
    • All companies were eligible for a base rate of 15 percent Companies that earned less than $800,000 in taxable revenue, were eligible for a 35 tax break
    • Within this framework, there was an incentive for companies to stay under that $800,000 taxable income benchmark in order to qualify for the 35 percent rate
    • Under the new regulations, that $800,000 limit is now gone, making all private, Canadian companies eligible for the 35% rate
  • With this change, the government is hoping to inspire additional research and development (R&D) spend across various industries including tech, cannabis, life science, and manufacturing.
  • This means that Canada can continue to develop its innovation ecosystem in an effort toward global leadership

How SR&ED makes your company more competitive

The benefits of the SR&ED tax credit go far beyond a tax break. The saving opportunities the credit presents mean that companies have an easier path to being competitive in their industries. This is particularly important in a business environment where companies that don’t continuously focus on R&D rapidly become obsolete.

It minimizes your R&D investment

  • If you’re not utilizing SR&ED tax credits, you have to budget 100 percent of your costs based on the capital you have available
  • With the credits, you can significantly discount your Canadian R&D department costs
  • Alternatively, it allows companies to afford more senior or experienced engineers.
  • SR&ED means you can focus on R&D while still maintaining a healthy profit margin to grow your business

It presents more opportunities

  • The credit provides the opportunity to increase your development or engineering teams size helping the company finish projects quicker or increase the level of investment in the company’s technology or intellectual property (IP)
  • The certainty of the tax credit and the level of funding encourages companies to maintain engineering or development levels and take on more technically challenging projects or ideas as the government is a partner in the project

It Enhances Canada’s Talent Ecosystem

  • The credit encourages companies to keep their technology investments local and in-house versus offshoring the work due to the cost differential
  • The benefits resulting in your IP being protected, all teams can be in the same time zone, quicker development cycles and improved quality of work
  • Partly due to the credit, it has encouraged many foreign-controlled companies to establish development divisions here in Canada, building out centers of excellence across Canada

Conclusion

The SR&ED tax credit is a great mechanism to use to lower the financial burden when developing new technology, staying competitive or relevant in the local or international marketplace or a field of science. Whether that’s cannabis, life sciences, internet of things, software, or manufacturing, all fields of science can take advantage of this cost savings. On a broader scale, this spells growth potential for Canada’s local industries — a shift that will also inspire further growth and development in these sectors.

Use SR&ED to unlock potential in your business. To get started, contact Terry Trotic, Western Canada SR&ED Leader, at 778.309.4744 or [email protected].

Insights

  • November 25, 2021

    2021 Quebec Economic and Financial Update

    Québec Finance Minister Eric Girard released the Update on Quebec’s Economic and Financial Situation on November 25, 2021.

  • Agility

    How to automate your bookkeeping (successfully)

    Is there an easy way to automate your finances? Take it one step at a time, Shayne Dueck, National Leader, ease, says in this latest insight.

  • Performance

    November 25, 2021

    Dealership investments in captive insurers and Form T1134: Filing requirements

    Dealership investments in non-resident insurance and reinsurance corporations are subject to increasingly complex tax reporting requirements. Non-compliance penalties can add up quickly.