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YOUR GUIDE AND INFORMATION TO SR&ED FINANCING IN 2021
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SR&ED CRA is very much in the news today. Much of that news has to do with the ability to both maximize and finance, via a SRED Tax Credit Loan your research spending. We'll focus on some of the current ‘ lay of the land' issues, as well as, equally as important, some of the mistakes you shouldn’t make when financing a SRED claim. Let's dig in.
EVOLVING CHANGES IN CANADA'S SR&ED PROGRAM
Just when we thought things have ' settled down' in the world of the tax credit things seem to be heating up again. Why? Part of that is due to the recent federal budget. After making some very significant changes in the program over the last year or two things seemed to settle down quite nicely. Yes, some of those changes affected claim size and availability ( elimination of capital assets used in R&D) but some great things happened also - a mini purge of unscrupulous SR&ED consultants, as well as a simplified ( we think!) application program.
MAXIMIZE YOUR REFUNDABLE TAX CREDIT AND ACCELERATE YOUR REFUND WITH A SR&ED LOAN
The program, simply speaking, allows for government refundable credits on research and development and allows Canadian business owners to recover a huge portion of direct spending on R&D.
DON'T MAKE THESE 6 MISTAKES IN SR&ED FINANCING
Our focus is on financing your R&D credit, so there’s probably no better time to go over some key mistakes you can make in financing, as well as simply preparing your claim.
WHAT IS A SR&ED CONSULTANT AND WHY ARE THEY IMPORTANT
Mistake #1 is simply ensuring you're not aligned with the wrong consultant, that mini-industry out there that prepares your claims if you or your accountant isn’t doing it yourself. Ensure that you're aligned with a reputable consultant that charges a fair fee or contingency rate. (A huge amount of claims are prepared on ' contingency' at the risk of the consultant)
WHEN CAN YOU FINANCE A SRED CLAIM?
Not making Mistake# 2 revolves around the timing of your SRED and the ability to time the financing. Claims historically could only be financed after they are filed together with your corporate tax return. That is no longer the case and you can generate financing around your claim even more it's filed if you have a credible claim and can show some experience in this whole area.
CLEAR UP YOUR SR&ED ARREARS
Mistake # 3 is ensuring that you understand that if you have CRA arrears of any type you're not going to be able to receive your chq from the government. They will simply net it out or apply it against your arrears. So focusing on the financing of a claim with CRA arrears is not a solid strategy suffice to say.
DO BANKS FINANCE SR&ED LOANS?
Mistake #4 involves assuming that your bank might finance your R&D claim. The short answer here is they in general don't do that, and if they will it’s in the context of a larger relationship with yourself with firms that are quite established and have other collateral. Your best bet to ensure proper financing of your claim is to seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can ensure the proper tax credit financing is in place in a prompt, efficient and cost-effective manner.
WHAT IS THE DIFFERENCE BETWEEN AN IRAP GRANT AND A SR&ED CLAIM
Mistake # 5. Simple. Don't confuse the IRAP program with SRED. IRAP claims arent financeable, they're a form of pre-approved grant that involves upfront approval and funding. The best way to think of it is IRAP is direct funding, SR&ED is indirect. In effect, the government with an IRAP funding is pre-approving your project. That's not SRED.
PREPARE A QUALITY CLAIM
Mistake# 6- Don’t lose focus on a quality claim to therefore allow a minimum of audits, appeals, objections, etc. Historically over 3 Billion ++ dollars more in Sred funding has been available on an annual basis over IRAP.
CONCLUSION
We’re the last to predict where the future of R&D funding in Canada will be going. But understand that as long as you have a claim it’s financeable under very creative structures.
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Stan Prokop
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