With COVID-19 resulting in uncertain times for many businesses, the need for government support has never been greater. When it comes to Canadian government funding programs for research and development of innovative new products or services, two programs tend to stand out above the rest: IRAP and SR&ED.
Both programs should be considered by any Canadian incorporated business that carries out internal R&D activities. As such, it is important for Canadian SMEs to know when and how to use each one of these programs based on their unique advantages.
What Is the Definition of IRAP and SR&ED?
Industrial Research Assistance Program (IRAP) – IRAP is a Canadian government funding program designed to accelerate the research and development projects of Canadian innovators. This program offers contributions of up to 60-80% of internal technical labour and subcontractor expenses. Approved applicants will receive funding throughout the duration of the approved project.
Scientific Research & Experimental Development (SR&ED) – SR&ED is a retroactive tax credit provided 4-12 months after approved innovative research projects have been completed. Claimed expenditures may include 35-45% of wages, materials, overhead, and various other expenses.
Both programs are currently seeing changes as a direct result to COVID-19, but they are still accepting new applicants. Sign up for our weekly newsletter to be notified of IRAP and SR&ED program updates.
More About IRAP Research Grants
The National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) provides government funding grants for Canadian businesses that are developing innovative products and services or internally adopting new technology to improve processes/production.
- Funding Contribution: Contributions of up to 50-80% of internal technical labour and subcontractor expenses.
- Eligibility: Innovative technical R&D projects with a level of technical uncertainty.
- Timeline: Projects to be carried out between April 1 and March 31 of every year. Single-year projects must fall within that timeline, with potential for 12+ month durations for larger projects.
More About SR&ED Tax Credits
The Scientific Research & Experimental Development (SR&ED) program provides tax credits to Canadian businesses that have completed innovative research projects. This program is currently seeing new claims be expedited as a direct result of COVID-19.
- Funding Contribution: Typically covers 35-45% of an innovative project’s cost.
- Eligibility: Applicants must be able to answer “yes” to the following 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?
- Timeline: After the R&D activities are conducted a tax reimbursement can take up to 4-12 months.
What Are the Main Differences with Costs and Contributions?
IRAP focuses specifically on covering 50-80% of eligible salary costs and Canadian subcontractor fees related to an R&D project whereas SR&ED will cover these costs, as well as overhead, but only supports 35-45% of a project’s overall costs. Because of the higher funding ratio, IRAP has an edge on the amount of funding support eligible businesses may receive.
Can You Stack IRAP and SR&ED Together?
The short answer is no. As a rule of thumb, unless a government funding program specifies what programs it is eligible to stack with, it is safe to assume accessing multiple funding programs will cause some hurdles during the approval process.
Which Program Should You Choose?
This depends on the size and scope of your business. Generally, we recommend going with the program that provides a larger funding amount. Contact a member of the Mentor Works team to find out which government funding program your business may be eligible for.
To learn how IRAP and SR&ED stack up against each other, download the IRAP vs. SR&ED slide deck and learn what these programs can do for your business.