The Scientific Research and Experimental Development (SR&ED) program and Industrial Research Assistance Program (IRAP) fuel research and development across Canada. Since these government programs share several similarities, some companies believe they can only apply for one at a time. In reality, you can use SR&ED tax credits and IRAP funding to support eligible activities concurrently.
IRAP and SR&ED Overview
The IRAP and the SR&ED program are facilitated by separate organizations, meaning their eligibility requirements and application processes differ. Qualifying for one program does not guarantee that you qualify for the other. As a result, it is crucial to understand how each initiative operates before seeking financial assistance from either.
What is the IRAP?
The IRAP exclusively helps small and medium-sized enterprises (SME) in Canada improve their innovative abilities and bring technological concepts to market. This program provides financial and advisory assistance to these businesses and connects them with larger companies in the research and development field.
Who is Eligible for the IRAP?
Your company must be an incorporated and profit-oriented SME with 500 or fewer full-time workers to attain funding from this program. Additionally, it must strive to develop and market innovative items, services, and processes in Canada.
Before offering support, the administrators of the IRAP will review your company. Ensure you prepare your business plan, your financial documents, and information about the management and technical teams before seeking assistance from this program.
How to Apply for IRAP
Contacting your local IRAP industrial technology advisor (ITA) is the first step you should take to apply for the program. The ITA will meet with you to discuss your project and learn more about your company, including your economic impact, operational strategies, projected growth, and business challenges. This individual may also answer questions and provide advice.
If the ITA verifies the project:
- They will ask you to create a proposal to obtain funding from the IRAP.
- The organization will review the proposal within three months, taking time to consider the project’s impact on your business and Canada.
- Once approved, you will receive funding to cover some of the costs of your R&D initiative.
- You will also need to submit reimbursement claims to the IRAP every month.
What is the SR&ED Program?
At the end of the tax year, many pioneering companies receive a refund from the Canada Revenue Agency (CRA) for the SR&ED tax credits they’ve accumulated that year. As the largest source of federal support for R&D in the country, the SR&ED program delivers $3 billion in tax incentives to more than 20,000 claimants annually, most of which are small enterprises. Since the initiative focuses on driving innovation, it does not require the project be a success to provide the refund. This safety net ensures pioneering businesses continue to innovate here in Canada.
Who is Eligible for an SR&ED Refund?
There are many activities that qualify for the SR&ED program. Some general eligibility requirements include:
- All or most of the project is completed in Canada
- Activities provide insights that help the company solve challenges or meet objectives
- Activities involve experimentation or analysis into science or technology-related subjects
How to Apply for SR&ED Tax Credits
A business owner who wants to claim SR&ED expenses must fill out Form T661 when filing their income tax return. This form includes a technical description of the project and any incurred R&D costs, including consumable materials, salaries, and contractor expenditures. You must report these expenses within 12 months of the income tax return due date to be considered for the program.
After you file the claim and submit your tax return, the CRA will examine the documents. If the Government chooses your claim for a detailed review, representatives from the CRA may visit your company to ensure your project expenses meet SR&ED requirements. Once approved, you will receive your refund within a few months of submitting your claim.
How to Use Both Funding Programs
If you plan to attain support from both the IRAP and SR&ED programs for your innovative project, act strategically. Using IRAP for wages and subcontractor expenses and SR&ED for overhead expenditures can enhance your cash flows, providing you with more capital to invest in other areas of operation.
Another financing strategy is to fund a large initiative with IRAP payments and then finance smaller, more uncertain projects within that initiative using SR&ED tax credits. One of the most effective methods for receiving funding from both programs is to start with IRAP and then seek SR&ED for remaining eligible costs.
Advance Your Expected SR&ED Refund and IRAP Grant with Easly
When searching for assistance with funding, turn to Easly for your financing solutions. We finance accrued SR&ED tax credits before the Government issues a refund for them, allowing innovative companies to receive cash they can put to work sooner. Customers that advance their SR&ED refunds with us may also be eligible to advance their IRAP grants as well. We’ll work with you to assess your situation and support you in any way we can.
Get in touch with one of our lending specialists to learn more.