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Be careful though! Eligibility for one program does not necessarily ensure eligibility for the other. We can help.
Innovation is the driving force behind any company seeking to strengthen its competitive position in its target market. The federal and provincial governments are important partners in funding innovation, through tax credits as well as grants. But, like any good partner, governments have their own criteria to determine whether they want to do business with you.
We wanted to compare the Scientific Research and Experimental Development (SR&ED) tax credit with the grant offered by the Industrial Research Assistance Program (IRAP).
Similarities
While eligibility for the SR&ED credit is verified by the Canada Revenue Agency (CRA) and the IRAP grant is managed by the National Research Council of Canada (NRC), the requirements related to the objectives around technological advancement, technological uncertainties and experimental work are identical.
At the same time, there are differences in these requirements. For the SR&ED, claims are filed AFTER the work has been done while IRAP claims are made for a future project.
Differences
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SR&ED |
IRAP |
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|---|---|---|
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Other criteria |
In addition to the technical criteria, the IRAP requires an innovation strategy as well as a comprehensive business plan with optimistic return prospects. |
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Impact on cash flows |
The claim for SR&ED credits is made in your company's income tax return and the refund is made upon assessment. Which means you might have to wait three to six months to receive the funds. |
As soon as your project is accepted, you can make disbursements. Claims are made monthly and reimbursements are received within 15 days |
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Refunds/reimbursements |
Calculation of the tax credit will depend on your company’s tax status (net income, capitalization) and may not always result in a refund. |
Only a CCPC with fewer than 500 employees is eligible. |
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Limited budget |
Since this is a tax credit, there is no limit to the amounts refunded by the government. |
An annual budget is allocated to the NRC. Accordingly, even if your project is accepted, the IRAP budget might not have any funds left in the government's fiscal year. Are you able to wait? |
Compliance
Regardless of the assistance program you choose, it’s essential that you keep evidence of your work. This should not be simply an accounting exercise, but rather consist of contemporaneous documentation demonstrating the work performed, the rationale for your decisions and the results obtained.
Since an IRAP grant usually reduces the amount of expenditures eligible for the SR&ED credit, it’s important that the calculation be based on solid data such as complete and accurate timesheets.
IRAP OR SR&ED? – THAT IS THE QUESTION
Do you really have to choose? While the same dollar amount of eligible expenditures cannot be subsidized twice, the IRAP grant and the SR&ED tax credit are complementary. If you’re using the federal proxy method to calculate the indirect costs related to your qualified SR&ED expenditures, you can include the hours already subsidized by the IRAP grant.
Be careful though! Eligibility for one program does not necessarily ensure eligibility for the other. Despite their similarities, these two programs are managed by two entirely different organizations. They do not always operate in the same way.
Summary
The Scientific Research and Experimental Development (SR&ED) program and the Industrial Research Assistance Program (IRAP) are two initiatives that can be used alone or jointly to fund innovation by a Canadian company.