Canada: Innovation Done Right Can Boost Your Cash Flow, Through The SR&ED Program And Many Others

Last Updated: March 24 2016
Article by Dale Wilson

Many newly launched and growing companies are like hot-air balloons that want to soar upwards, but ropes hold them tethered to the ground. Those "ropes" take the form of cash constraints – just not enough money available to take advantage of all the opportunities.

Yet many companies focused on innovation are missing out on ways they can boost their cash flow to provide money to meet expenses, through government programs designed to foster new technologies.

Many of the funding programs have been in place for decades, part of the federal government's drive to foster high-value employment that involves research and development. They have already created huge benefits for companies that learn to use them effectively, so that companies that haven't taken the time to learn are at a disadvantage.

Companies that learn to consistently enhance cash funding through tax refunds and tax reductions in concert with many of the available funding programs have a significant advantage when it comes to funding growth, without the potential downsides of external financing.

Advice, connections and funding

Some of the many research-based funding programs that help small to midsize companies succeed are:

  • Industrial Research Assistance Program (IRAP) – a program of the National Research Council, IRAP helps fund Canadian small-to-midsize enterprises (SMEs) who are developing innovative products.
  • Ontario Centres of Excellence (OCE) – This program works in partnership with industry and academia, to co-invest in order to commercialize innovation originating in the province's colleges, universities and research hospitals.
  • Mitacs – This national organization funds research in partnership with universities, industry, and both federal and provincial governments, to support innovation in Canada.

Tax refunds and tax reductions for advancing technology

One of the most widely-accessible programs is the Scientific Research & Experimental Development Program (SR&ED). SR&ED provides significant tax incentives to Canadian businesses that advance technology leading to new or improved products, processes, materials or devices. It doesn't have to be a single giant leap of innovation to be eligible for SR&ED – the program allows for incremental improvements too.

Some company leaders may have heard of SR&ED, but believe that the work they do does not qualify for the program, or that it's too much trouble to be worthwhile. Yet this program awards over $3 Billion per year to over 20,000 taxpayers, 75% of these being small businesses. And there's no need for a dedicated research facility – most claims are made based on work within commercial operations. The benefits are structured to favour of smaller firms.

In many cases, the refund arrives within two months of filing – a potential lifesaver regarding cash flow. Some financial institutions will extend credit based on a successful SR&ED claim.

Canadian-owned corporations (within the CRA's definition) can earn over $60 for every $100 of salary expenditure, refunded as cash. Foreign-owned corporations and individuals can earn over $20 for every $100 of salary expenditure, which reduces taxes payable.

Qualifying claims must be filed within 18 months of the company's fiscal year-end.

It is a significant advantage if the claim is made by a third-party firm that is highly knowledgeable of your industry and that has an excellent track record in both tax filings and SR&ED claims, and which is well known and experienced in working with the many funding sources.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Dale Wilson
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