SR&ED programs are found in countries all over the world. For Canada, ours is one of the more generous, offering businesses extensive non-dilutive funding that allows organizations to grow while facilitating innovation in science and technology at home.
SR&ED stimulates the Canadian economy in a wide variety of ways. We know that every dollar of tax incentives issued through SR&ED in Canada stimulates an average of $1.30 of R&D spending. The result of innovations that come through SR&ED funding leads to growth at an individual business level and on a wider scale. This is a major reason this program issued nearly $4 billion annually to approximately 20,000 applicants.
Several objectives are built into the Scientific Research & Experimental Development (SR&ED) program, Canada’s largest source of R&D funding. Let’s learn the ten different goals of the SR&ED program:
1. SR&ED prioritizes innovation.
The purpose of the SR&ED tax credit system is to encourage and reward innovation. There’s funding available for companies and organizations pursuing science and technology innovation. This means they can explore new ideas and concepts, being competitive with other corporations nationally and internationally.
2. SR&ED achieves technological advancement.
Another goal of the SR&ED program is to produce technological advancement. To achieve technological advancement, the route there can be long and costly. SR&ED is a strategy to help fund the journey. In the end of it, hopefully, it provides a business with Canadian-made technology that can be used to spur future development.
3. SR&ED funds different areas of research.
SR&ED casts a very wide net on the type of R&D it funds. This was done purposefully to ensure several different kinds of R&D could be included. You can apply for SR&ED for ‘basic research, such as when one is looking to increase scientific knowledge with a practical application.
It can be applied research where a practical application is involved, and it’s often to develop a new or improved product, process, or service. It can also be ‘experimental development’ wherein prototypes or products are researched and analyzed.
4. SR&ED offsets project costs.
R&D is expensive. In many cases, there is no certainty about the result of R&D, and without adequate support, many businesses would be hesitant to spend what they’re spending on innovation.
SR&ED offsets many of these project costs, allowing businesses to recoup percentages of salaries and wages, material costs, and more, incentivizing more corporations to spend on research and development.
5. SR&ED helps Canada’s competitiveness.
The stronger Canadian-owned businesses are, the more competitive Canada is global. SR&ED tax credits have strengthened the support for science and technology companies, providing Canada with the chance to maintain competitiveness. It’s also attracted foreign-owned corporations to do their business in Canada, helping to provide jobs and strengthen our economy.
6. SR&ED is accessible to any corporation.
A goal of SR&ED funding is to not discriminate against any specific industry. Any company can apply if the project meets what qualifies for SR&ED tax credits. The more common industries applicants come from include agriculture, food processing, and cannabis.
In addition, the SR&ED program is good for information and communication technology, healthcare, medical device manufacturers, and pharmaceutical companies. It also works for advanced manufacturing and independent researchers.
7. SR&ED spurs growth in Canadian businesses.
While foreign-owned corporations can and do apply, the SR&ED program targets Canadian-controlled private corporations (CCPCs). The use of SR&ED tax incentives has allowed small businesses to grow, reimbursing them for their investment in developing new products, processes, and advancements in science and technology. The tax credits earned can be reinvested back into the business.
8. SR&ED helps increase efficiencies.
SR&ED helps to improve the quality of business operations and products. You can arrive at more efficient processes and newer, better products, ultimately strengthening your operations and revenues.
For small and medium-sized businesses finding it difficult to compete with larger corporations, SR&ED allows them to advance their objectives relating to innovation and sometimes elevates a small business above its much larger competition.
9. SR&ED provides businesses financial freedom.
When granted SR&ED tax credits, there are a few different options for how to use them. SR&ED funding can be taken as a deduction against income. It can also be taken as an investment tax credit, or ITC, either fully refundable, partially refundable, or non-refundable.
Depending on how your corporation is classified and the options available to you, there is some freedom in how one chooses to maximize their SR&ED credits. They can even be applied to future or past years in certain circumstances.
10. SR&ED raises the well-being of Canadians.
When the Canadian economy does well, so do everyday Canadians. SR&ED is one of several programs aimed at raising the economic well-being of Canadians. While SR&ED’s effectiveness has been disputed in recent years, there is no doubt that it is achieving this primary objective.
Many argue it can be improved, however. In the years to come, as the SR&ED program potentially changes, the objective of serving Canadians remains a key element of SR&ED.