The topic of Canadian Tax Credits is a pain point for many. It is all too common that a business has its first introduction to government tax incentives by being presented with a three-page list of various programs. Of course, 90% of these programs are so small, or so niche that they might as well not exist. Hidden somewhere on that list, however, is SR&ED, the 3-Billion-dollar program, given to 20 000 companies annually to incentivize the creation of Canadian jobs.
Officially, SR&ED exists to incentivize Canadian businesses of all sizes and in all technology sectors to conduct research and development (R&D) in Canada. Perhaps not by coincidence, the classification of SR&ED as an R&D program conjures up thoughts of lab workers in white coats, or PhDs and P. Eng’s conducting novel “research”. Sure, this type of hardcore research is covered by the SR&ED Program. But the reality of the “average” SRED claimer is much broader. Federal government statistics show that 95% of credits are awarded for experimental development work (i.e., not classic R&D work).
The process of creating new products or services, carrying out IT projects, failed projects, prototyping, bringing new technologies to bear in a business are all experimental expenditures that may qualify for SR&ED.
Another common barrier to SR&ED is the perception that it is for large multinational companies only. Again, this is completely false. The ideal company for SR&ED is a small business (known as a CCPC or Canadian Controlled Private Corporation) as the credit rates are higher for these firms vs public or multinational companies. Credits are also delivered as cheques for small businesses instead of as non-refundable tax deductions for larger companies.
Now that we have established the criteria for SR&ED and the ideal size of company, what is the big deal? How big of a difference can SR&ED actually make? The answer is a huge difference. Canadian small businesses can actually receive credits of up to 70% of spend on salary, and 40% of spend on materials and subcontractors. This may seem hard to believe at first, and the natural question would be why this is not talked about constantly by the government of Canada? Put simply, the government is not in the business of giving money away, yet because the government is in the business of creating Canadian jobs, the program exists, but it is not front and centre for many people in general industry.
Once companies know about the power of the SRED Program, it can change the way you think about growing your business. If you know that the government will pick up half the cost of a new project’s cost, you will be more likely to plow ahead with that work. If you know that the government will pay up to 70% of the cost of new engineering headcount, you may be much more willing to hire staff and take on new technically risky jobs. You might hire a new computer guru rather than apply a band-aid and outsource two more critical IT jobs to China.
G6 can work with you to show you how SRED can accelerate your business goals and your business’ growth. We are not here to maximize your 2019 or 2020 SRED claim. We are here to help you maximize the SRED funding you receive over the next ten years. Check out our calculator at g6consulting.ca to get an idea of the magnitude of the resources available to you.
When you think of Canadian Tax Credits, make sure you think of SR&ED