SR&ED tax Credits continue to be a strategic method in which Canadian business can both stay competitive and at the same time take advantage of the governments non repayable grants. Most parties agree this is probably the most beneficial grant program in Canada, bar none.
Not only is the program applicable to almost every industry in Canada, but at the same time business owners and financial managers can compound the power of this program by financing their claim. Get cash for my SR ED claim now? Asks Canadian business. The answer is an unqualified yes.
Let’s recap some of the key aspects of the program as they relate to your ability to ‘monetize ‘your tax credit into real cash flow and working capital now. Also, let’s recap and focus on some current issues in your ability to access and maximize your SR&ED claim.
If you aren’t filing a SR&ED claim you certainly can’t finance one. The Canadian government, both federally and provincially reimburse billions of dollars annually to Canadian business in all industries. A few industries seem more tailors made than others for SR&ED claims, example: Software and information technology. But the reality is your firm can be a commercial bakery, a sign company, or an industrial manufacturer. The bottom line is that almost every industry is eligible in some manner.
Government grants SR&ED dollars in its own interest to allow Canadian companies to become more competitive and profitable.
Your claim of course needs to be prepared by a knowledgeable third party. In Canada this essentially is an accountant who is proficient in SR&ED or a third party commonly called a SR&ED consultant. In many cases some consultants specialize in only certain industries, which is a plus.
Recently changes in the entire SR&ED process can both help and hinder your firm in maximizing your total SR&ED credit. Naturally the larger the claims the more amount of cash that you can finance under a tax credit financing.
Canada Revenue Agency has instituted new forms for the claim. Forms are found online at the government website, and in some cases have dramatically simplified your ability to file and explain and back up your claim. For example, the new online from limits the overall technical description of our claim to only 1400 words.
In general almost 75% of claims are not fully audited, and are therefore approved and somewhat fast tracked for refund.
How do some of the new forms and rules affect your ability to finance your claim? When it comes to financing your SR&ED claim it is critical to work with an experienced, credible, and trusted third party. Claims are generally financed at 70% of their overall value. Therefore your ability to have your claim fully document, prepared by a credible third party, and fast tracked into the ‘non audit ’75% of all claim range is a solid SR&ED financing strategy.
Naturally just because your claim might undergo a SR&ED audit does not mean it is not financeable. The reality is that your claim if it is strong and supportable will be approved and therefore can be financed.
We referenced that claims are financed at 70%. That simply means that the larger your claim you can receive immediately, on financing approval.70 cents on the dollar for your claim. You of course still receive the rest of the claim, less financing costs, when your claim is approved and funded by Ottawa
The entire SR&ED tax credit financing process is very similar to any other business financing. You should not approach it unlike any other financing your firm might contemplate – there is a basic application, which is of course supported by your actual technical claim. The SR&ED loan is collateralized by your claim, as we have stated. Typically a financing can be completed within a couple of weeks, which allows time for application, any due diligence that might be required, as well as documentation and registration of the claim.
If you are filing SR&ED claims in Canada you are among the 15% of businesses that are eligible for this non repayable grant – why not compound the power of that government benefit and consider financing your claim. Accelerate your cash flow and working capital and utilize those funds for any general corporate purpose. A recent firm we worked with chose to finance their sr&ed claim simply because they had seasonal cash flow – they didn’t want to wait for many months for their cheque – and intend to utilize those funds for general business growth and working capital.
So whats our bottom line? Its simply that you should take advantage of the funding under the program, and you may wish to consider monetizing your grant into cash flow now. That’s innovation in both your product and services, as well as your financing strategy! Utilize your funding to accelerate more research and use the cash flow for further growth and development.