When it comes to Canadian government funding programs for research and development (R&D) activities, two programs have become synonymous with R&D funding: the Industrial Research Assistance Program (IRAP) and the Scientific Research & Experimental Development (SR&ED) program. Both programs should be considered by any Canadian incorporated business that carry 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.
In this article, we’ll look at how this research grants and tax credits differ, and how your project may be eligible to stack both IRAP & SR&ED together.
Given the complex nature of funding for research and development projects, the application process for IRAP and SR&ED can be daunting to someone who is new to Canadian government funding programs. Businesses seeking application assistance can reach out to a member of Mentor Works, our grant writing team that can take care of the IRAP and SR&ED application process on behalf of your business. Reach out to our team to see if your business is a good fit for Canadian government funding programs.
What Is 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. This program has no max funding amount. 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 after or during an innovative research project. Claimed expenditures may include up to 69% of labour and overhead costs, 36% of contractor costs, and 45% of material costs. This program has no set limit on funding.
Overview of 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.
Overview of SR&ED Tax Credits
The Scientific Research & Experimental Development (SR&ED) program provides tax credits to Canadian businesses that are currently or previously conducting innovative research projects. This program is one of the largest tax credit programs ever introduced by the federal government.
- Funding Contribution: Tax credits can cover up to 69% of labour and overhead costs, 36% of contractor costs, and 45% of material costs for eligible projects.
- Eligibility: Applicants must be able to answer “yes” to the to the following five standard questions. Applicants will also be asked how and why their project was able to achieve each of these areas:
- 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 a SR&ED claim has been filed a tax reimbursement will be provided relatively quickly, but can take up to 12 months with certain applications.
What Are the Main Differences Between IRAP and SR&ED?
IRAP is a proactive funding program and focuses specifically on covering 50–80% of eligible salary costs and Canadian subcontractor fees related to an R&D project. SR&ED is a retroactive tax credit that will cover these costs as well as overhead costs; however, applicants may receive a lower amount funding towards a project’s overall costs. We highly recommend combining IRAP & SR&ED funding together for your R&D projects, but doing so isn’t as straightforward as one might think.
Can You Combine IRAP and SR&ED Together?
The short answer is yes, you can! Since both programs are offered by the federal government, projects that are eligible for funding through both programs must carefully choose what they will fund in one program, and what they will fund through the other program.
Since IRAP is proactive funding and requires your business to apply and get approved for funding before a project commences, you’ll need to heavily consider:
- What expenses make the most sense to include in your IRAP application, submitted before a project has been conducted, and
- What expenses will be included in the SR&ED retroactive funding application, submitted after a project has already incurred its expenses.
Additionally, your IRAP and SR&ED funding will likely have a clause that will state an overall maximum amount of funding your business can receive through program stacking. As an example, let’s say your project was approved to have 50% of wages covered through IRAP grant funding. Since IRAP allows for up to 60–80% of wages covered for a project, you may be eligible to receive SR&ED funding for employee labour costs that would likely cap out once your project reaches IRAP’s 60–80% of wages covered. This stacking limit will be different for each project and applicant.
Given the complexity of stacking these programs together, we highly recommend applying for both these programs with professional grant writers and SR&ED consultant team at Mentor Works, a Ryan company, to maximize the amount of funding your project can receive. Our team saves an estimated 95% of application writing time compared to businesses that apply for funding in-house. Call us at 1-888-599-3111.
Which Program Is the Right Fit for You?
The Industrial Research Assistance Program (IRAP) and the Scientific Research & Experimental Development (SR&ED) programs are complex applications, especially if your businesses decide to stack their funding together for the same project. The right program will be entirely based on your project and its eligibility for each program. In general, we recommend applying for whichever program you can receive the most money for if you need to choose between the two.
If you believe your business may be eligible for funding through the either of these programs and would like assistance with the complex application process, we strongly recommend booking a free meeting with the Mentor Works team of government funding application writers to discuss if your business is eligible to apply for IRAP and SR&ED funding, and how our team can take care of the application process on behalf of your business.
To learn additional information on how the Industrial Research Assistance Program (IRAP) and the Scientific Research & Experimental Development (SR&ED) programs stack with each other, download the IRAP vs. SR&ED slide deck and find out how your business can receive the maximum amount of funding for R&D projects.