How Capital-as-a-Service and the SR and ED Tax Credit Works

How Capital-as-a-Service and the SR and ED Tax Credit Works

Many Canadian businesses know about the SR and ED tax credit. It is a tax credit that the Canadian government offers some companies if they’re doing specific research and development types. Many companies have R and D departments, and they want to get this tax credit if they can.

That’s where Capital-as-a-Service comes in. In this article, we’ll explain which Canadian businesses can use this tax credit, and we’ll also cover Capital-as-a-Service fundamentals.

What Companies Can Use the SR and ED Tax Credit?

Before we get into Capital-as-a-Service fundamentals, we’ll explain which companies should look into this option. Only Canadian-located companies can use the SR and ED tax credit, so if you have an outside-the-country location, this is not an applicable option for you.

The three business types that can use this tax credit are:

  • Experimental development
  • Applied research
  • Basic research

If you’re looking for an experimental research tax credit, you need to be doing work that advances technology. Your purpose should be to create new materials, products, devices, or processes or improve existing ones.

If you’re doing applied research, you must be working for scientific knowledge advancement with a specific, practical application goal. If you’re doing basic research, you must be working to generally advance scientific knowledge, but you will not a particular objective in mind.

You can interpret these designations in different ways, but if you’re not working in these areas, you won’t have any chance of getting the credit.

What Work Types are Not SR and ED Tax Credit-Eligible?

Several work types won’t allow you to get this credit. They include:

  • Routine data collection
  • Product style changes
  • Improved or new device, material, or product commercial production

You also can’t do natural gas, mineral, or petroleum drilling, exploring, or prospecting. You can’t do humanities or social sciences research. You cannot do routine testing or quality control, and you can’t do sales promotion or market research.

Since none of these have altruistic purposes, these exclusions make sense. The Canadian government only wants to subsidize potential society-helping projects.

How Does Capital-as-a-Service Work?

Now, we get into Capital-as-a-Service. Capital means a business’s financial assets. It’s the money it has to use on production facilities, storage facilities, manufacturing equipment, etc.

Generally, the more capital you have, the more your company can do. It’s like petty cash, but on a larger scale.

Capital-as-a-Service, or CaaS, means you have a company or entity that gets your business money when it needs it. It is a consumption-based service delivery model.

It’s flexible, and it usually starts when you contact a CaaS company and tell them all about your business and what it needs to succeed and thrive. The CaaS company, if they’re any good at what they do, can tell you how to borrow or otherwise obtain money for your startup, small business, or larger company.

What Does CaaS Have to Do with the SR and ED Tax Credit?

Let’s imagine for a moment that you have a company, and you’re doing one of the R and D types that we described. Maybe it’s experimental development.

You’re Canadian-located, and you feel like you might be able to apply for the SR and ED tax credit. However, you look on their website, and you find it befuddling. There are many elements at play, and you experience complete confusion before you finish applying.

A CaaS company can help you in this area. When you contact them, they can tell you whether your company is a suitable SR and ED tax credit candidate. They can then act as your go-between.

They can take care of your company’s whole application process. For a nominal fee, they can make sure you get the money you need to keep your R and D going, and they can do it a lot more expediently than you could handle it on your own.

They will have worked with many other companies, so they know precisely how to approach the program operators. They’ll streamline the application process and accelerate the funding timeline.

They can also set you up with predictable quarterly monetary installments, so you can confidently plan out your long-term budget. Most companies find this to be a much better way than getting a lump sum government payment.

Now, you should understand both whether you might be SR and ED tax credit-eligible and also whether you should contact a CaaS company. There are some excellent ones that can take away a lot of potential headaches.