Invest in R&D the Right Way

Canada offers attractive incentives for businesses to join in on research and development. This is because results from R&D can lead to economic growth, innovation, and job creation, all of which the country needs to keep up with trading partners.

How can companies benefit from getting involved in R&D? This article will focus on what options are available and how businesses can maximize their gains from investing in R&D.

R&D Tax Incentives

Any business that invests in R&D can apply for the Scientific Research and Experimental Development (SR&ED) program. This research and development tax credit in Canada is considered one of the most generous in the world, as it provides businesses with a tax credit of up to 35% of their R&D expenses.

There are also provincial R&D tax incentives available, which can further reduce a company’s taxes. For instance, the Ontario Research and Development Tax (ORDTC) is a tax credit worth up to 3.5% of R&D expenditures in Ontario.

How to Claim R&D Tax Credit in Canada

The main R&D tax credit in Canada is open to any business regardless of size and industry. However, to claim the SR&ED tax credit, companies need to meet specific criteria.

First, a business must conduct work to advance scientific or technological knowledge. Second, the work must be a systematic experiment or involve the process of trial and error. 

Eligible work includes basic research, applied research, and experimental development. This work may be in the areas of engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research.

Not all research work is considered for SR&ED. You won’t be able to claim the tax credit if your work only involves the following:

  • Market research or sales promotion
  • Quality control or routine testing of materials, devices, products, or processes
  • Research in the social sciences or the humanities
  • Prospecting, exploring or drilling for, or producing minerals, petroleum, or natural gas
  • The commercial production of new or improved materials, devices, or products or the commercial use of a new or improved process
  • Style changes
  • Routine data collection

Businesses interested in the SR&ED tax credit should invest seriously in R&D and ensure that their projects meet the eligibility requirements.

How to Finance R&D Activities

SR&ED financing may seem costly initially, but there are affordable ways for small businesses to fund their R&D activities.

1. Partner with research institutions: Partnering with research institutions is a great way to access funding and resources. Many universities, colleges, and other public research organizations offer collaborative programs that financially assist businesses looking to invest in R&D.

2. Apply for government grants: The Canadian government provides multiple grants for small business owners looking to invest in R&D projects. These funds can be used for product development, market expansion, and technology advancement. Examples of available grants include the Industrial Research Assistance Program (IRAP) and the Strategic Aerospace & Defense Initiative (SADI).

3. Seek venture capital: Venture capital firms invest in innovative businesses with the potential for solid returns. A company with a promising R&D project can approach venture capitalists and angels to finance its activities. 

4. Apply for an R&D loan: There are loan programs specifically designed for businesses that need to finance their R&D activities. For instance, the Canadian Small Business Financing Program is a low-interest loan program that provides up to $1 million in financing for small and medium-sized enterprises (SMEs).

Expert Guidance on R&D Tax Credits

As previously mentioned, there are several R&D tax credits available to businesses in Canada. However, it’s easy to become overwhelmed by numerous regulations and requirements. That’s why it’s crucial to find experts who can help business owners understand which tax credits are available and show them how to take advantage of them. Accountero is a financial hub with experienced and knowledgeable consultants who can provide. We specialize in helping small businesses navigate the complexities of SR&ED, ORDTC, and other provincial/federal tax credit programs. Contact us today for a session.

Accountero is a tech-powered service provider offering bookkeeping, tax advisory, and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.

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