Canada’s research and technological innovation sectors are constantly growing and evolving—many times thanks to the accessibility of the funding opportunities offered by the Canadian government.
If you’re looking for ways to finance your business’s research and development projects or get your innovations to market, it’s time to take advantage of our government’s research initiatives. There are several valuable funding options just waiting for you to apply.
Two exceptionally gainful programs are the Scientific Research and Experimental Development (SR&ED) tax incentive program and the Industrial Research Assistance Program (IRAP). Both programs direct funding to projects that involve research, innovation, and development.
What many companies do not realize is that IRAP and SR&ED funding are not mutually exclusive and can be applied to THE SAME PROJECT! The key to maximizing available funding resources within each program is to use them complementarily without overlapping claimed expenses.
But first, let’s look at what these two programs are, and then we’ll look at how they can be used together.
What is SR&ED?
Canada’s SR&ED program is one of the world’s best-paying R&D tax incentive programs. Every year, over 20,000 Canadian-controlled private corporations (CCPCs), partnerships, and sole proprietorships receive more than CDN $3 billion in tax credits by submitting 60,000 expenditure claims through the SR&ED program. Here’s the rundown on what you need to know about SR&ED:
Who qualifies for SR&ED tax credits?
Canadian companies and corporations from a long list of industries, ranging from agriculture, breweries, and cannabis to information technology and telecommunications, manufacturing, printing, cosmetics, and skincare can qualify for SR&ED tax credits. Check out our claim services menu for more information on the industries covered.
Value
Canadian-controlled private corporations (CCPC) can claim expenditures of up to $3 million at a rate of 35% and a non-refundable credit of 15% for the portion of claims above $3M. Non-CCPCs can claim a non-refundable credit of 15%.
Eligible work
Qualifying SR&ED projects involve basic research, applied research, and experimental development in a field of science or technology. The key to successfully claiming SR&ED credits is ensuring that the project work advanced existing scientific knowledge or achieved technological advancement through systematic investigation and experimental analysis.
Identifying eligible work is the foundation for a successful SR&ED claim. The expert SR&ED consultants at SRED Unlimited specialize in pinning down the claims that fit program criteria. Learn whether you may qualify for SR&ED tax credits.
What is IRAP?
The National Research Council of Canada’s (NRC) IRAP program has been available to Canadian businesses since the 1970s. It is designed to help Canadian small to medium sized businesses increase their innovation capacity and take their ideas to market. In addition to monetary grants, IRAP encourages a strong support network that connects businesses with advisers and research experts throughout Canada.
The government has recently announced new reforms coming to the program in 2024. By April 2024, the Federal government will establish the Canadian Innovation Corporation (CIC) which will merge with IRAP for a seamless transition, with the goal of boosting funding and reducing backlog.
Here’s the rundown on what you need to know about IRAP and the new changes:
Who qualifies for IRAP funding?
IRAP provides funding to incorporated and profit-driven Canadian businesses with 500 or fewer full-time employees with R&D capabilities, as well as advice and business connections. Funding is awarded on a case-by-case basis under four sub-programs.
Eligible businesses must:
- Have been incorporated for at least 2 years
- Be a small or medium-sized enterprise in Canada, incorporated and profit-oriented;
- Have 500 or fewer full-time equivalent employees; and
- Have the objective to grow and generate profits through the development and commercialization of innovative, technology-driven new or improved products, services, or processes in Canada.
Once the program transitions to CIC in 2024, three streams will be available for applicants:
- Applied Research
- Experimental Development
- Technological Adaptation
Value
IRAP awards grant funds of up to $10 million for larger research and development projects. Typically, businesses can qualify for up to $150,000 in funding for eligible activities, which covers up to 75% of eligible expenses. Most recently, the federal government revealed plans to make an additional $250 million available through the existing IRAP program.
The additional capital is being committed after members of the Canadian innovation sector lamented that existing federal emergency programs have not been inclusive of startups. The $250 million funding injection is specifically meant to address this gap and help support early-stage and high-growth Canadian startups. The additional funding will be available for companies that are already receiving IRAP support, as well as new applicants.
Eligible work
The new changes are not expected to include any change in the eligibility rules.
IRAP qualifying projects involve the development and commercialization of innovative, technology-driven products, processes, or services for the purpose of generating revenue.
Learn more about whether your business qualifies for IRAP funding through IRAP’s advisory services.
How to Use SR&ED and IRAP funding together
Contrary to general belief, businesses can claim SR&ED tax credits on the same projects for which they receive IRAP funding. SR&ED and IRAP incentives can be applied complementarily to help meet funding needs; however, there are key differences between the two to be aware of:
- IRAP: Whether you are awarded IRAP funding is determined through a selection process by the Government of Canada. Not everyone that is eligible will be selected.
- SRED: Your business is entitled to SR&ED credits on all eligible work.
- IRAP: Grant funding is disbursed on a regular schedule throughout the year based on projected expenses.
- SRED: Tax credits accumulate as project work progresses throughout the tax year and are then filled as eligible expenses at the end of the reporting period.
If you have already qualified for IRAP funding, your business can file SR&ED claims to help refund the balance of unpaid project expenses.
It is suggested that, as much as possible, IRAP funding be funneled towards expenses that would not qualify for SRED﹘marketing, administration, and any work not directly involved in or supportive of experimentation and development work. This maximizes the number of project expenses that could be claimed for SRED. IRAP funding never covers 100% of project expenditures. There is always going to be a proportion of expenses that will fall outside of IRAP funds.
Maximize your research funding and tax credits
Despite all the information available online about the IRAP and SR&ED incentive programs, navigating the application process can be confusing, not to mention time-consuming. This is where SR&ED Unlimited can help.
Our job is to connect the dots on your innovative projects and make filing an SR&ED claim as easy for you as possible.
Our SR&ED consultants expertly filter out aspects of R&D work that meet SR&ED eligibility requirements. They know how to maximize SR&ED claims and work around IRAP funding so you can receive a substantial tax credit or cash refund to offset that portion of qualifying R&D expenditures.
Book a free consult to see how the R&D work you’ve done could qualify for SR&ED tax credits.
