SR&ED and Life Sciences: Maximizing Funding for R&D Support
February 10, 2025
Sector:
At Kreston GTA, we are committed to supporting life sciences innovators as they navigate the journey from groundbreaking ideas to impactful solutions. One tool that can make a transformative difference for innovators in this space is Canada’s Scientific Research and Experimental Development (SR&ED) tax credit program. In this article, we discuss how we educate and encourage life sciences companies and startups along their growth path to access critical funding, offset costs, and invest in innovation. This article offers important insights to empower your success, for both early-stage companies that are new to the program and also established companies looking to maximize benefits towards improving outcomes with a holistic approach that incorporates the benefits of both SR&ED tax credits and other incentives.
What is SR&ED?
The SR&ED program is a federal initiative administered by the CRA, designed to support businesses performing research and development (R&D) in Canada. It offers cash refunds for eligible R&D activities, helping companies recover a significant portion of their expenditure. For Canadian-controlled private corporations (CCPCs), the program refunds up to 66% of qualified salary expenses, and materials, salaries, and contractor costs are also eligible. This makes SR&ED particularly relevant for life sciences innovators, where R&D plays a pivotal role in developing innovative solutions to complex challenges. By addressing some of the financial challenges, SR&ED allows companies to focus on creating groundbreaking products, processes, and technologies that have the potential to revolutionize healthcare and biotechnology.
Why SR&ED Matters for Life Sciences Ventures
The life sciences industry thrives on innovation, whether it’s creating cutting-edge medical devices or advancing biotechnology. However, R&D in this field is both resource-intensive and time-consuming. Here’s where SR&ED becomes invaluable:
Offsetting High Costs: The costs for materials consumed or transformed in testing and research are eligible to be refunded through federal and provincial SR&ED programs in Ontario. For a life sciences startup, this can significantly reduce expenses.
Funding Specialized Talent: Developing groundbreaking innovations requires hiring top-tier talent, from scientists to engineers. SR&ED allows startups to attract and retain highly skilled professionals.
Collaboration: Many life sciences innovators work with specialized contractors to perform specific testing or analysis. For instance, a biotechnology innovator hiring a third-party lab to conduct preclinical toxicology tests could recover expenses through SR&ED, making it easier to meet critical R&D milestones while managing other costs.
Capital Expenditures: Proposed changes to the SR&ED program in 2025 may allow for the inclusion of capital expenses such as equipment. This may be especially beneficial for life sciences companies with significant equipment costs.
By directly addressing the challenges of high costs, and the need for collaboration, SR&ED can allow innovators to overcome some of these barriers and focus on innovation.
What Expenses Are Eligible?
For life sciences innovators, SR&ED can cover a variety of R&D-related expenses, including:
Salaries and Wages: Employees that are engaged in experimental work, including research, development, clinical trials, prototyping or testing, can be eligible.
Materials and Consumables: Costs associated with materials used in experiments, such as chemicals, reagents, and testing kits, are eligible.
Contractor Fees: Expenses for third-party contractors performing eligible R&D activities can be claimed.
How SR&ED Accelerates Growth in Life Sciences
SR&ED can have long-term benefits, particularly for early stage to medium-sized life sciences companies:
Improved Cash Flow: The financial boost from SR&ED allows startups to reinvest in operations, hire additional staff, or acquire new technology.
Attracting Investors: Demonstrating eligibility for SR&ED credits signals to investors that the company is engaged in credible and innovative R&D, making it a more attractive investment opportunity. Often, grants are available to companies with a proven SR&ED filing track record.
When is the Right Time for SR&ED?
The timing of SR&ED tax credits along with other incentives can strategically make a significant difference in maximizing the program’s benefits for your life sciences venture. Consider these factors:
Early-Stage Ventures: If your company is in the early stages and heavily focused on research and innovation, it’s a good time to apply for SR&ED. Activities like designing prototypes, testing new materials, or conducting initial experiments are often eligible.
Scaling Ventures: Companies in the growth phase with increased R&D activities, such as scaling clinical trials or expanding product lines, can leverage SR&ED to offset these higher costs.
Established Companies with R&D: Even mature businesses introducing new products or optimizing existing ones can benefit. Regularly evaluate your projects for SR&ED eligibility.
Additionally, align your SR&ED claims with your fiscal year and conduct quarterly reviews to ensure you capture all eligible activities and expenses. SR&ED claims are due within 18 months of your fiscal year-end, but the sooner you submit the better.
Find out more by reaching out to one of our experts.
#SR&ED #lifescience #taxcredits #Canadianfunding #innovation
Spence Walker, Managing Partner
Dale Wilson, Partner, National Leader, SR&ED and Government Incentives
