Is Your Alberta Business Eligible for the Innovation Employment Grant (IEG) and SR&ED Tax Credits?
The Canadian federal government’s largest and most successful R&D funding program is the Scientific Research and Experimental Development (SR&ED) program. It has been so successful at incentivising Canadian businesses to conduct R&D within the country that the Alberta provincial government has created the Innovation Employment Grant (IEG) as a funding program that can be stacked with SR&ED eligible businesses.
Alberta businesses eligible to apply for the federal SR&ED program may also be eligible to stack this funding with the provincial Innovation Employment Grant (IEG) program.
Most Canadian provinces and territories have their own variant of the Federal SR&ED program that businesses with permanent establishments in multiple provinces can take advantage of, as well as other business R&D grant, loan, and wage subsidy programs.
Program Snapshot: Innovation Employment Grant (IEG)
The IEG was modeled after the eligibility criteria and expenditures accepted in SR&ED with a focus on providing funding towards eligible labour costs, contractors, materials, overhead, and other costs. Although it’s called the Innovation Employment “Grant” it’s actually technically a refundable tax credit.
Amount of Funding
This tax credit has a similar set of rules for eligible expenses and activities as the federal SR&ED program. To qualify for the IEG, the program must be applied for in the corporation’s tax return for the tax year ending after December 31, 2020. IEG claims must be filed within 21 months of year end, whereas SR&ED claims must be filed within 18 months of year end to qualify.
- A refundable tax credit of up to 20% is available up to a maximum annual expenditure limit of $4 million.
- A refundable tax credit of up to 8% can be claimed for eligible R&D expenditures in Alberta.
- A refundable tax credit of up to 12% is available for eligible R&D expenditures that exceed the corporation’s base spending level.
- An organization’s base level of spending is based on its average Alberta R&D spending over the past two years.
- The IEG rate is linearly reduced if the prior year’s taxable capital exceeds $10 million and is NIL at $50 million of taxable capital.
- IEG is considered government assistance and will reduce the federal pool of deductible SR&ED expenditures and qualified SR&ED expenditures.
Businesses in Alberta that invest in research and development activities can apply for the IEG. The program’s eligibility requires that the business is eligible for tax credits under the federal SR&ED requirements as seen below:
- Available to corporations that undertake R&D in Alberta. The IEG cannot be claimed by partnerships, trusts, or individuals, unlike the federal SR&ED program.
- To ensure that IEG targets small and medium-sized companies, it is gradually phased out for firms with taxable capital of $10 million to $50 million.
- Firms with $50 million or more in taxable capital are not eligible for the credit.
- Eligible expenditures must have been incurred in Alberta after December 31, 2020 and parallel those that qualify for the federal SR&ED program.
Many of the expenses shown here are similar to the expenses that the business can get funded through the federal SR&ED funding program:
- Labour: Based on time spent on eligible activities in Alberta.
- Contractors: Portion of contract related to SR&ED performed on the business’ behalf. Must be a Canadian contractor, and work must be performed within the province of Alberta.
- Third Party Payments: Payments (money or in-kind) to an entity to carry on SR&ED in the province of Alberta.
- Materials: Materials can be purchased from outside Alberta but must be used in the prosecution of SR&ED in Alberta.
- Overhead: Calculated using the Proxy (Quick) or Traditional (Detailed) method.
Eligible expenditures must have been incurred for SR&ED in Alberta after December 31, 2020.
- Available for tax years ending after December 31, 2020. The filing deadline for the IEG is 21 months after year end and applicants should have submitted a federal SR&ED claim within 18 months of year end.
- The former Alberta SR&ED program ended on December 31, 2019. That program provided a 10% tax credit on costs incurred for work classified as SR&ED in Alberta up to a $4 million annual expenditure limit. There is no Alberta program for SR&ED expenditures incurred during the 2020 calendar year.
Apply for the Innovation Employment Grant (IEG)
If your business conducts R&D in Alberta and is eligible for SR&ED funding, speak with a SR&ED consultant at Mentor Works, a Ryan Company to find out how your business can stack IEG and SR&ED tax credits together with other funding programs like grant funding through the National Research Council of Canada’s Industrial Research Assistance Program (NRC IRAP).
Get to learn more about stacking both SR&ED tax credits and IRAP grant funding for your R&D projects by downloading our free IRAP vs. SR&ED slide deck PDF.