Timing is critical when it comes to applying for Canadian government funding. Businesses should be acutely aware of the type of government funding they’re applying for, as it could have implications on their eligibility and when they need to complete the necessary paperwork. The difference between reactive and proactive funding can mean the difference between your project being eligible or ineligible.
Reactive Funding: Support for Past Activities
Businesses might be unaware that they’re conducting activities that are eligible for reactive funding. The good news about reactive funding is that businesses might still be able to apply for this funding after they’ve incurred their expenses, as long as they apply within a certain window. These reactive funding programs are distributed as Canadian tax incentives or credits. This means that businesses can wait until tax season to include the reactive funding claims in their tax preparations.
Each tax incentive or credit has its own form and claim process. Two of the most common tax incentives are the Scientific Research and Experimental Development (SR&ED) tax incentive program and apprentice tax credits, such as the Apprenticeship Job Creation Tax Credit. SR&ED supports research costs made throughout the taxable year, while the apprentice tax credits will support apprentices’ training and payroll costs.
Proactive Funding: Strategic Investments in the Future
As you might have guessed, the focus of proactive funding is less on past expenses and more on future expenditures. This type of Canadian government funding is created as a catalyst for strategic investments that otherwise would not happen without funding and is offered as either a non-repayable grant or repayable contribution in the form of a low- or no-interest loan.
Businesses need to apply for proactive funding through a formal application process. The application will require the business to detail their project, expenses, timelines, and corporate details. The application process itself varies widely between programs, sometimes requiring multiple application stages, an oral presentation, and letters of support. However, the payoffs can be considerable, with funding ranging from a few thousand to multi-million-dollar funding payouts.
Balancing Reactive & Proactive Funding
It is possible for businesses to apply for both reactive and proactive funding, sometimes even towards the same project. Be sure to consult each program’s guidelines to ensure you’re aligning with their stacking rules, since provincial programs aren’t able to be stacked with others (in most cases) and it’s a common requirement that no more than 75% of eligible expenses be covered through Canadian government grants and incentives. A frequently stacked pair of reactive and proactive funding programs is the SR&ED tax incentive with the IRAP research grant. Read our blog on IRAP vs. SR&ED to learn more about utilizing one or both of these programs to support your research and development activities.
It’s common for reactive funding to be managed by an accounting professional, due to their direct relationship with the business’ annual tax reporting process. Meanwhile, proactive funding can be applied for throughout the year and does not require an accounting professional, though the application does require insight into financial and strategic aspects of the business. Building a funding plan can help sort through all of these programs and build a healthy balance of reactive and proactive funding grants and incentives to tap into.