When performing research projects that involve technical risk or uncertainty, Canadian innovators should use government funding programs. These offset project costs and reduce risk, making exploratory innovations more achievable for SMEs. To innovate as efficiently as possible, companies should be aware of how incentives such as the Industrial Research Assistance Program (IRAP) and the Scientific Research and Experimental Development (SR&ED) tax credit work.
Although there is a significant amount of information available online that reviews research funding programs, it can be difficult to understand exactly how the programs work. For those who are new to government funding, the process of figuring out what do and when to apply may seem like too much of a burden. Ultimately, the lack of straight-forward resources prevents innovators from accessing research incentives.
Fortunately, Mentor Works’ IRAP vs. SR&ED Guide explores each funding program in a streamlined way. Access it to take a deep dive into each opportunity and see how they stack up.
Aside from basic questions like how much funding your project can access, companies often ask what types of projects qualify for research funding. This article reviews the concepts of “Technical Uncertainty” and “Experimental Development” at greater depth to help uncover whether research grants and incentives are a good fit for your upcoming project.
Research Funding Requirements: Advancing the Available Knowledge Base
The main objective of IRAP and SR&ED funding is to help Canadian innovators perform exploratory research that advances the current technological knowledge base. Ideally, innovators should be confronting issues that will lead to improved features, functionality, or capabilities, for either products or processes.
IRAP and SR&ED both use similar language when referring to the types of projects that are eligible to receive funding. Typically, if your project meets the following definitions, it will be considered a good fit for the programs:
- Technical Uncertainty or Risk (IRAP): Technical uncertainties exist when innovators view a product- or process-related challenge with an end goal in mind. Typically, this will be an enhanced version of previous technology, and there are roadblocks preventing the transition to its upgraded state. Uncertainties and risks are often resource-driven (either time, talent, or money), and IRAP can help by providing companies with the cash flow necessary to overcome them.
- Experimental Development (SR&ED): Experimental development is all about undertaking work to achieve technological advancement. It assumes that there is an upper level of knowledge available in a field, and the company seeks to expand on that understanding. Experimental development may or may not have an end goal in mind, which is ideal for SR&ED where companies can claim funding for research costs without having to achieve with tangible results.
While both the Industrial Research Assistance Program (IRAP) and the Scientific Research and Experimental Development (SR&ED) tax credit provide funding for innovative research, their focus is slightly different. Experimental development projects can also maintain technical uncertainties and risks, but will not have the same commercialization focus of projects well-suited for IRAP.
Additional Eligibility Criteria for SR&ED and NRC-IRAP Research Incentives
In addition to innovation requirements, IRAP and SR&ED funding maintain eligibility criteria unique to each program. These rules are more focused through the Industrial Research Assistance Program, which awards non-repayable funding contributions (grants) on merit. IRAP funding is competitive in nature where businesses must work to secure project funding. Scientific Research and Experimental Development tax credits are an entitlement to Canadian businesses with qualifying projects, so more businesses will qualify.
NRC-IRAP Research Grants
To qualify for the Industrial Research Assistance Program (IRAP) grant, applicants must:
- Maintain 1-500 payroll employees;
- Be incorporated for two years or longer; and
- Be committed to internal research and development.
SR&ED Research Tax Credits
To qualify for the Scientific Research and Experimental Development (SR&ED) tax credit, applicants must be able to answer “yes” to five standard questions:
- Was there a scientific or a technological uncertainty?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the overall approach consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
- Was the overall approach undertaken to achieve a scientific or a technological advancement?
- Was a record of the hypotheses tested and the results kept as work progressed?
Learn More About How IRAP and SR&ED Funding Work
This article compares eligibility criteria for IRAP and SR&ED, two popular Canadian research funding programs for businesses. While this information will help you understand the overall purpose and requirements of each, there is still lots more to consider before your company is ready to commit to a particular funding program. Much of your decision also depends on the amount of funding available, expenses that can be included, and when funding is awarded.
To compare more elements of the IRAP and SR&ED programs, including funding potential and how to apply, please download Mentor Works’ IRAP vs. SR&ED slide deck.