The Scientific Research and Experimental Development ("SR&ED" or "SRED") is a Canadian Government program introduced in the 1980s to encourage businesses of all sizes, particularly small to medium and start-up firms, to conduct applied research and development (R&D). It is one of the most successful programs the Federal government has launched to encourage technical innovation in Canada.
Wikipedia has the following to say about SR&ED:
Introduced in the 1980s, the SR&ED program is intended to encourage businesses of all sizes, particularly small to medium and start-up firms, to conduct applied research and development (R&D) that will lead to new, improved, or technologically advanced products, processes, principles, methodologies, or materials. As Canada's largest federal program in support of industrial R&D, the SR&ED program provides over $4 billion in investment tax credits (ITCs) to over 18,000 claimants each year. Of these, about 75% are small businesses.
SR&ED expenditures (already deducted against revenue) may qualify for investment tax credits (i.e., a reduction in income taxes payable), cash refunds, or both. Qualifying expenditures may include wages, materials, machinery, equipment, travel and training expenses, property taxes, utility expenses some overhead, and SR&ED contracts from the following activities:
- Experimental development
- Applied research
- Basic research
- Support work
In order to claim such expenditures, an assessment on scientific or technological eligibility of the claimed activities needs to be performed, according to three criteria:
- Scientific or technological advancement
- Scientific or technological uncertainty
- Scientific and technical content
The Ministry of Finance is responsible for the legislation that governs the SR&ED program, while the Canada Revenue Agency is responsible for its administration.
The SR&ED tax credit, like any item on a company's balance sheet is an asset. Most financial institutions do not have the understanding or capacity to put a hard value on the underlying asset. It is difficult for them to create financial products around them—leaving a financing gap for those companies who make innovation a core part of their business strategy. SRED financing, or SRED factoring, is broadly defined as the unlocking the value of the SR&ED tax credit through the loaning or factoring of the asset before funds are returned by the Canadian Revenue Agency.
Through our exposure to the different companies we have financed—we have seen many reasons to leverage a companies SR&ED claim. Bridging sales receivables from a purchase order, unlocking a company milestone that will drive (or avoid) a financing or bridging working capital to a merger or acquisition event are all scenarios in which Espresso Capital can add significant enterprise value to your company.
Contact us to discuss how SRED can be the right solution for your business.The SR&ED (SRED) program for tax credits is one of a small handful of government programs in Canada that in a very direct fashion turn credits into real cash flow and working capital that is non repayable . When business owners find out that they...
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You’re an inventor and entrepreneur developing a new solution and living off KD and Timmy’s. In Canada this is typical of many new start-ups. Let’s assume you’re a Canadian Controlled Private Corporation (CCPC). There may be a way to add...
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