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.Vancouver and Toronto, Nov 27, 2011– Espresso Capital Partners, a provider of alternative financing for growth companies in Canada, announces the first closing of its second Fund based on financing government tax credits . The $30-million Espresso Tax Credit II Fund was created in response to increasing demand from technology and digital media companies for funding [...]
Canada’s SR&ED program is currently being reviewed by the federal government and your input is important. Help us keep SR&ED intact – tell the federal government how it’s important to your company In December 2010, the federal government convened an Expert Panel to review federal support of Research and Development in Canada. Several organizations provided input [...]
Like the alien plant in Little Shop of Horrors that was always demanding “Feed Me, Seymour”, technology startups constantly gobble cash. The CEO’s top priority is to continually feed this beast. This means that overriding the operation of any tech startup is the every-present need for more money. As illustration, let’s run through the finance [...]
After reading the article by Barrie McKenna entitled “Flawed R&D scheme costs taxpayers billions” (http://bit.ly/fHCJFo) in the Globe and Mail’s March 11, 2011 edition, I believe there are some truths and some misconceptions. Mr. McKenna writes, “And the low risk of getting caught means too much of the money winds up in the hands of [...]
VANCOUVER, BC – November 23rd, 2010: Espresso Capital Partners is pleased to announce the closing of a CDN$ 600,000 financing to Clevest Solutions Inc. (“Clevest”) – a Richmond-based software company that was ranked as the fastest growing technology company in BC by Business in Vancouver in both 2009 and 2010. This primary use of funds [...]
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