SR&ED as A Source of Non-Dilutive Funding
Non-dilutive funding is capital that business owners receive which doesn’t need them to give up any ownership or shares in their company. For many companies, non-dilutive funding is a crucial requirement to help them in getting their business started.
Canadian sources of non-dilutive Funding
There are many examples of non-dilutive funding, including grants, tax credit programs, contributions from donors or family and friends, and competitions. In Canada, the single biggest source of non-dilutive funding is the SR&ED tax credit program. It is worth $3 billion annually and is administered by the CRA (Canadian Revenue Authority).
Why use SR&ED non-dilutive funding
The SR&ED (Scientific Research and Experimental Development) tax credit program is Canada’s biggest tax credit program. The federal government contributes more than $3 billion to more than 20 000 companies in Canada every year.
Almost any Canadian company can be eligible for SR&ED tax credits. If some of a company’s employees are working to solve a technological problem for which a readily apparent solution is not available, there is a very good chance the work being done will qualify for SR&ED tax credits.
Even if a company’s employees are not directly doing SR&ED qualifying work, if the company is paying subcontractors to conduct such work, it may also be eligible for SR&ED tax credits. The government also funds SR&ED work to offset material costs incurred while performing work that qualifies for SR&ED.
In Canada, SR&ED is an extremely valuable source of non-dilutive funding. The government provides tax credits to offset up to 40% of material and subcontracting costs, as well as up to 70% of payroll costs that qualify. Although SR&ED funding is taxable, it is taxed extremely favorably. Rather than SR&ED being taxed for the year in which it is paid out, it is taxed in the following year. This provides a built-in tax deferral advantage over other non-dilutive funding sources.
Many companies don’t want to apply for SR&ED non-dilutive funding due as it may seem overwhelming and complex. A lot of expertise is required to differentiate between non-eligible work and qualifying work while completing tech write-ups in such a way that it maximizes the chances of approval can be tricky. This is where SR&ED consultants can really add value.
SR&ED consulting companies like Flow Ventures will often work on a contingency, and won’t have to be paid until you have received your non-dilutive funding from the CRA. We will work with you at no upfront cost while building your claim, filling out the forms, and submitting your application. We will support you and handle the complete review process until your claim has been approved.
Want to learn more? Book a complimentary consultation with our team of experts now.