If your company conducts research and development, you most likely have or will consider a number of government funding and tax credit programs. How do you assess which program is right for you? How do you determine which program offers the greater expected return for your time and effort?
This article will compare two of the oldest and most popular federal programs: the Industrial Research Assistance Program (IRAP) and the Scientific Research & Experimental Development program (SR&ED).
IRAP is a federal program administered by the National Research Council that providesR&D grants to qualified innovative small and medium sized enterprises in Canada. The program has a limited budget (about $270 million in 2014/15) and receives hundreds of submissions annually, making it a very competitive funding option.
To apply you will need to submit a comprehensive business plan outlining your go to market plan as well as revenue and profit projections. IRAP evaluates these projections as part of their approval process. Subsequent to funding, IRAP will periodically measure your company’s progress relative to your projections, and will make recommendations as needed, occasionally mandating changes that you may not agree to.
For some companies, IRAP’s ‘hands on’ approach and influence in project management may be a welcome source of value add. In our experience, however, government officials do not make the best entrepreneurial coaches and mentors. We believe better strategic, commercial and operational advice can be found elsewhere.
The SR&ED program is administered by the Canada Revenue Agency (CRA) and offers tax credit for eligible R&D expenditures. The SR&ED program has no fixed budget, so every eligible claim is approved. In 2012, the program processed 25,000 claims worth approximately $3.6 billion in tax credits.
It’s worth noting that any IRAP funding will reduce your eligible expenditures for SR&ED claims. Additional differences between IRAP and SR&ED include:
- IRAP only considers applications for future R&D projects. SR&ED approves eligible expenses already incurred;
- IRAP benefits are usually paid in instalments as you report on your project’s progress. SR&ED tax credits are approved in a lump sum after your year-end tax filing has been accepted by the CRA;
- IRAP funding is restricted to companies with fewer than 500 employees. SR&ED has no limits on company size; and
- SR&ED includes a broader category of expenses than IRAP.
We believe SR&ED is the better option for the majority of companies, delivering greater results both in financial return and time invested. Our advice, based on over a decade of experience, revolves around three key reasons:
- SR&ED is not based on a prior selection process;
- SR&ED is available to any company that qualifies; and
- IRAP funding will be deducted from SR&ED claims.
Guest post by Mike Evans, Emergex SR&ED Subsidies Inc.
Emergex has become one of Canada’s most successful tax credit consulting practices over the past decade. Our professionals have degrees and experience in computer science, engineering and tax law. They specialize in software and information technology, along with other technology sectors. Because of our experience, professional credentials and reputation with the CRA, we enjoy an overall 98% claim approval rate. Mike Evans can be reached at +1 (416) 697-4110.