Your Guide to Everything SR&ED

The world of non-dilutive funding can be a scary and confusing place — but it doesn’t need to be! With the right information and a strong strategy, anyone can take on non-dilutive funding and use it to grow their business. Pocketed wants to help you better understand SR&ED and how it can help you supplement your grant funding.

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We’ve talked about the wonderful world of grants, but it is time we teach you about SR&ED!

What now? We know “SR&ED” looks like the beginning of a bizarre math formula, but we promise it’s not! SR&ED stands for Scientific Research and Experimental Development (try saying that ten times fast!) and is a $3 billion federal government program that provides tax incentives to encourage Canadian businesses of all sizes and sectors to conduct research and experimental development to advance scientific knowledge and technology.

Don’t worry if you’re still confused, we’ll walk you through it. Let’s dive into the nitty-gritty of how it works, who’s eligible, and what you can claim!

How it Works

As we covered, SR&ED uses tax incentives to encourage Canadian businesses to conduct research and development within Canada. The three different incentives are: income tax deduction, investment tax credit, or tax refund.

This means you can either pool together your SR&ED expenditures and deduct them against your current-year or future-year income. Or you can get the SR&ED investment tax credit and use it to reduce your income tax payable (sometimes resulting in a refund).

Eligibility

Like the name suggests, in order to be eligible, you need to be conducting some sort of scientific research and/or experimental development.

When trying to find out whether your research or project is eligible, there are two very important questions to ask yourself:

1. Why are you conducting your research or project? Is it for the advancement of scientific knowledge or technology? If yes, keep reading!
2. Equally as important as the why, is the how: How are you conducting your research? It must be a systematic investigation that is carried out in the field of science or technology by means of experiment or analysis.

These two questions are important because they help differentiate between an ineligible commercial project and actual scientific development and research.

Let’s break this down even more. Using these questions can help you better determine your eligibility:

• Are you solving a problem that can’t be solved using existing publicly available tools?
• Was there scientific or technological uncertainty in your ability to solve that problem?
• Did you formulate a hypothesis specifically towards reducing or eliminating these uncertainties?
• Did you test your hypothesis through a systematic investigation, including activities such as experimentation, data analysis, or non-commercial prototyping?
• Does your work create a scientific or technological advancement, or is it simply part of standard practice towards commercializing a new product?
• Have you kept detailed records and documentation of your R&D work throughout the project?

If you answered yes to all of these questions, you might be eligible for SR&ED!!

What you Can Claim

So, you are eligible for SR&ED and you’re ready to make a claim! But what exactly can you claim? Let’s find out!

When it comes to making a claim, there are 3 categories of eligible work:

1. Basic Research
2. Applied Research
3. Experimental Development

If your work falls within one of those 3 categories, then you can claim the following:

• Salary or wages
• Materials
• Contracts for SR&ED
• Overhead and other expenditures
• Third-party payments

And that’s it! Now that you know the ins and outs of SR&ED, you’re ready to discover the right funding for you 🎉

Create a free Pocketed account today and consider taking advantage of our marketplace if connecting with a SR&ED consultant is something that interests you! In fact, one of our amazing partners, Stratesol, shared their SR&ED expertise with us so we could bring you all of this juicy information on how to maximize your business’ funding! If SR&ED Consulting is on your wish list, let us know!