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 experimental development. By reducing costs by up to 64 per cent, 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 per cent; companies that earned less than $800,000 in taxable revenue were eligible for a 35 per cent 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 per cent rate
- Under the new regulations that $800,000 limit is now gone, making all private, Canadian companies eligible for the 35% per cent 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 per cent 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 team 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
- It helps to keep teams working together locally, resulting in quicker development cycles, improved quality of work, and can improve IP protection
- 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
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—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 your local MNP office, or Terry Trotic, Western Canada SR&ED Leader, at firstname.lastname@example.org