Leveraging IRAP and SR&ED for Tech and AI Companies

Innovation is the key to staying ahead in the everchanging fields of technology and artificial intelligence (AI). Fortunately, the Government of Canada offers valuable support programs to help small and medium-sized tech companies and AI enterprises embark on creative endeavours that have the potential to lead to big breakthroughs.

Below, we will explore two essential programs that do just that: IRAP (Industrial Research Assistance Program) and SR&ED (Scientific Research and Experimental Development). Let’s dig into these initiatives and understand how tech and AI companies can make the most of them.

What is IRAP, and How Does It Benefit Tech and AI Companies?

The National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) is an innovation assistance program for Canadian SMEs (small and medium-sized enterprises). This program provides financial and advisory assistance to businesses while also connecting them with larger companies and other support organizations that can assist them with research and development (R&D). If your tech or AI company is seeking ways to improve your innovation capacity through financial assistance, advisory services, or networking, IRAP has you covered.

To be eligible for IRAP, your company should be an incorporated and profit-oriented SME with 500 or fewer full-time employees. Additionally, your business must be profit-oriented and strive to develop and market innovative products, services, and processes in Canada. If your tech or AI company is considering seeking assistance from IRAP, thorough preparation is vital. This includes having a well-defined business plan, financial documentation, and information about your management and technical teams.

What is SR&ED, and Why is It Significant for Tech and AI Companies?

The SR&ED (Scientific Research and Experimental Development) program is a cornerstone of federal support for R&D. This program provides over $3 billion in tax credits annually to more than 20,000 claimants, many of whom are small businesses. R&D projects do not need to be successful in their outcomes in order to be eligible for SR&ED tax credits. This safety net for innovation helps tech and AI companies continue their R&D efforts in Canada.

Eligibility criteria for SR&ED include completing the project domestically, contributing to the existing scientific or technological knowledge base, and conducting experimentation or analysis using the scientific method of hypothesis creation and interrogation. All of which many AI and tech companies are already doing, meaning many of them may be eligible for SR&ED. Overall, the SR&ED program is a valuable source of financial support for Canadian tech and AI companies as it funds R&D efforts within these industries and others.

IRAP and SR&ED: Understanding the Differences

IRAP and SR&ED are government programs designed to support innovative organizations but differ in how they provide financial support. IRAP funding is granted at the start of a project and throughout its duration. On the other hand, SR&ED comes as a lump tax refund or deduction to income tax owing after you’ve completed qualifying activities during the fiscal year.

It’s important to note that IRAP doesn’t cover overhead costs like utilities, while SR&ED does. This distinction allows businesses to decide which projects to claim under which program strategically.

For tech and AI companies, pursuing both IRAP and claiming SR&ED can significantly benefit your R&D efforts and enable you to maximize the benefits you receive from the Canadian government. However, understanding how to attain the benefits of both programs can be complex. This is where a consultant can be invaluable. Easly can connect your business with our network of expert consultants who specialize in this field.

Ready to get Started with Easly?

Innovation is the backbone of tech and AI companies. By leveraging programs like IRAP and SR&ED, your company can reach significant goals and milestones in your R&D work. If you’re looking to explore these programs further or are interested in learning more about financing your earned SR&ED credits, don’t hesitate to reach out to the experts at Easly.