Last updated: Nov. 16, 2016
What Is the R&D Tax Credit?
To stay competitive on a global scale, farms and small businesses need to be innovative and advance within their fields of expertise. This can be difficult for businesses that are starting up or small businesses competing against much larger companies with bigger budgets.
Some small businesses turn to traditional financial institutions, but this comes with bank interest and even demands from investors.
There are tax and business incentives offered by the Federal and Provincial Governments that can help generate cash refunds and offset the costs and risks associated with research and development (R&D).
The Scientific Research & Experimental Development (SR&ED) tax credit program was developed by the Government of Canada to encourage Canadian businesses in all sectors, big or small, to conduct R&D.
There are many benefits to the SR&ED tax credit that farms and small businesses can take advantage of to help their company grow.
Incentives of the R&D Tax Credit
The incentives of the SR&ED tax credit vary depending on the business and the industry that you operate in. That said, virtually every small business, even those that don’t operate in traditional research fields, could benefit from the R&D tax credit.
Some of the benefits of the R&D tax credit include:
Businesses that Engage in Qualifying R&D
If you operate a business that operates in qualifying R&D, you can get a full tax deduction for expenses in the year that those expenditures are incurred. You can qualify for a tax deduction even if the expenses are capital expenses.
Getting a tax credit can reduce the actual cost of performing different types of R&D and can improve the return in your small businesses research investment.
Businesses Can Pool Qualifying Expenses Used for R&D
Canadian businesses can pool their qualifying expenses, and as a result, you can carry over any deductions you do not need. This provides the flexibility of choosing between an immediate tax credit or carrying that tax credit over to later years.
This allows small businesses to better budget their funds, lowering the overall costs of R&D, and lowering the payoff you need to get a better return on your investment dollar.
Generous Investment Tax Credit
One of the biggest benefits to farms and small businesses, though, is the generous investment tax credits (ITC).
For eligible projects, the Federal Government provides refundable tax credits of 20% to 35% of the eligible costs plus overhead; this includes salaries, contractor fees, and materials.
This can drastically reduce the amount of income taxes you pay which significantly reduced the cost of your small businesses qualifying R&D expenses.
Best of all, ITCs can be taken as cash refunds, which means you can get money back even if the amount of credits you have is greater than the amount of money you owe in income taxes.
Some provinces also have generous R&D programs, including Ontario’s 10% refundable Innovation Tax Credit.
FBC, Helping Small Business Maximize Their R&D Tax Credits
Research and Development is an important part of helping farms and small businesses grow. But it doesn’t have to be a risky, costly process.
Understanding Canada’s federal and provincial tax credits and other programs could help provide your company with R&D ITC that help preserve needed capital. It can also help your business thrive and grow.
Hiring a tax consultant with decades of experience, like FBC, is your best investment for understanding the nuances of Canada’s SR&ED tax credits. FBC has been helping small business owners across Canada minimize their income taxes and maximize their assets since 1952.
For more information on how FBC tax specialists can help your small business with its R&D tax credits, income tax preparation, accounting, financial planning, bookkeeping, and advisory services, call us today at 1-800-265-1002 or submit an online form and a FBC tax specialist will contact you at your earliest convenience.