NorthBridge Consultants Blog

CanExport Funding Increased and Expanded

CanExport is a government funding program that provides funding to Canadian small and medium-sized enterprises (SMEs) to support new export market development.

As of August 22, 2019, the CanExport project funding limit for SMEs will be increased up to $75,000 to cover up to 75% of eligible expenses.

Previously, the CanExport program excluded the agriculture and food processing sectors, since companies in these industries were already eligible for export funding through the AgriMarketing program. However, as of August 22, 2019, the program will also be expanded to support companies from Canada’s agriculture, agri-food and agri-products industry, including fish and seafood.

Through the CanExport program, companies can receive financial support of up to $99,999 for export marketing activities. Eligible activities need to exceed the company’s core activities and focus on promoting international business development. These may include business travel costs, exhibitions at trade shows, market research, adaptation of marketing materials for new markets, and legal fees associated with a distribution/representation agreement.

In order to be eligible for funding through the CanExport program companies must have 1-250 full-time employees and $200,000-$50 million in annual revenue declared in Canada. The CanExport program is open to companies in all sectors. Export activities to existing markets are not covered by the CanExport program but still remain eligible for funding from the Export Market Access (EMA) program.

For more information on the CanExport program and other sources of funding, please contact us.

Federal SR&ED Legislative Proposal Status Update


on June 21, 2019, Bill C-97, an Act to implement certain provisions of the 2019 federal budget received royal assent and became law.

The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program provides a  basic 15%, non-refundable credit to all businesses performing SR&ED in Canada. Eligible small and medium-sized enterprises (SMEs) can qualify for enhanced 35% refundable tax credit rate of qualifying SR&ED expenditures up to $3M per fiscal year.

Eligibility for the 35% rate was determined by a business’ level of taxable capital and income from the prior fiscal year. 

  • The taxable capital threshold is between $10M and $50M.
  • The taxable income threshold begins at $500,000 taxable income in the prior year and reduces current fiscal year eligibility for the enhanced credit on a sliding scale until $800,000 taxable income in the prior year.

Budget 2019 proposed to eliminate the income threshold to qualify for federal enhanced (refundable) SR&ED investment tax credits for taxation years beginning on or after March 19, 2019, for SMEs, in order to increase support for SMEs that are scaling up their R&D efforts or have variable income from year to year. The capital threshold will continue to apply.

The new law will allow CCPCs with taxable capital of up to $10M to access to the enhanced refundable SR&ED investment tax credit regardless of their taxable income.


Example of Calculating tax credits for CCPCs
in Ontario above the small business limit


The table above presents an example for calculating SR&ED tax credits for a CCPC in Ontario that qualifies for the federal ITC and provincial ORDTC, with less than $10M in taxable capital and more than $500,000 in taxable income. In some cases, companies may also qualify for the Ontario Innovation Tax Credit (OITC) at a tax credit rate of 8%.

Contact us today to find out how the new legislature will impact your business or if you would like to learn more about various government funding sources to innovate and grow your company.

New Federal Climate Change Action Incentive Fund Open for Applications

SMEs operating in sectors such as building, transportation, industry, waste, and agriculture, within Saskatchewan, Manitoba, Ontario, or New Brunswick may be eligible to receive a rebate to cover up to 25% of eligible project costs for a maximum of $250,000 through The Climate Action Incentive Fund (CAIFSME Project Stream to support retrofit projects that reduce energy usage, costs/ greenhouse gas (GHG) emissions.

On April 1, 2019, the federal fuel charge came into effect in the provinces of Saskatchewan, Manitoba, Ontario and New Brunswick under the Greenhouse Gas Pollution Pricing Act, which aims to reduce greenhouse gas emissions, support clean growth, and incentivize the reduction of energy use through conservation and efficiency measures. According to the Department of Finance, the fuel charge rates are based on global warming potential/ emission factors used by Environment and Climate Change Canada, and reflect a carbon pollution price of $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per tonne annually to $50 per tonne in 2022.

The Government of Canada has committed to return most of the direct proceeds from the fuel charge to individuals and families in those provinces through Climate Action Incentive payments. The remainder of proceeds will be distributed to SMEs, organizations in the MUSH sector (municipalities, universities, colleges, schools, and hospitals), and NFPs (not-for-profit organizations) through programming such as CAIF.

Eligibility

Eligible applicants are incorporated small- or medium-sized enterprises (with less than 500 employees), operating in at least one of these provinces: Saskatchewan, Manitoba, Ontario, and New Brunswick, and requesting between $20,000 and $250,000.

Eligible proposed project must be implemented after the approval-in-principle notification sent by Environment and Climate Change Canada (ECCC) and no later than March 31, 2021. The proposed project must also help your enterprise reduce energy use, costs, and/or GHG emissions associated with its operations, lead to long term cost savings, and will not cause increased GHG emissions from its operations.

Eligible CAIF SME Project Stream categories include (but are not limited to) the following activities:

  • Agricultural retrofits
  • Building retrofits
  • Electricity, energy or fuel production
  • Industrial process improvements
  • Transportation retrofits
  • Waste

Application

The application intake period for the CAIF SME Project Stream will open for 90 days starting on July 17, 2019, or until funding is exhausted.  

If you would like more information on the CAIF SME project Stream or other government funding sources that can help your company innovate and grow, contact us today for a free consultation.

What Every Canadian Startup Needs to Know About Non-Dilutive Financing

When it comes to starting a Canadian business, especially one with expensive R&D aspirations such as those in the high tech industry, it’s of crucial importance that a startup leverages government funding to extend the runway of its venture.  

A startup that doesn’t capitalize on the wide range of government funding opportunities is putting itself at a huge disadvantage, which can not only limit profitability but also undermine innovation and relinquish equity that would otherwise remain centralized.

In order to maintain the vast majority of control in a company during the startup process, it’s important that funding leverages non-dilutive financing when possible. While dilutive funding can be advantageous to get over fiscal hurdles requiring a quick injection of revenue, dilution will affect executive discretion and detract from long-term profits as financers exercise their power as shareholders or seek high returns on their investments. Venture capital and angel investors should, therefore, be tentatively used during the startup process until after the risk surrounding commercialization has been surmounted and any leverage held by financers is obviated. The SR&ED tax credit program, in combination with the other sources of non-dilutive government funding, can maximize a startup’s potential for success by reducing the risk of research and development.

Maximizing Profits and Mitigating Risk with SR&ED

Canada’s Scientific Research and Experimental Development (SR&ED) program provides an amazing means of funding a business every fiscal year with tax incentives. That means small and medium-sized enterprises (SMEs) can start collecting substantial returns up to 35% on qualified expenditures following their first year of research and experimentation, as long as program criteria are met. The Canadian government’s commitment to supporting innovation ascends beyond almost every other industrialized nation in the world, as demonstrated by the more than $3B paid out each year to participating companies. A startup that structures their business to meet SR&ED requirements from the start will be all the more prepared to save countless dollars that can accelerate business growth and product development as the money is reinvested into further project innovation.

To qualify for SR&ED, first and foremost a company must be a Canadian-controlled private corporation with a total net income below $800k and taxable capital employed in Canada not exceeding $50M. A company can claim expenditures related to experimental development, applied and basic research, and support work by ensuring that these expenditures meet the three criteria of SR&ED’s assessment on scientific or technological eligibility. That is, a company must establish that their claimed project (1) has technological uncertainty that can only be overcome through (2) systematic investigation and that hypothesis formulation and experimental analysis during development (3) generates information that advances understanding of the underlying technologies.

Another critical requirement to claiming SR&ED is ensuring that the necessary information is collected throughout the year to comprehensively file a claim, which is why structuring a startup to track experimental development, employee labor, material expenditures, etc. is essential for maximizing business efficiency. With a practical tracking system in place, claiming SR&ED tax credits can be a lucrative strategy for financing prototype and minimal viable product (MVP) development, as well as funding clinical trials (in the medtech industry for example), because it affords a company the opportunity to take risks in their experimentation to improve new technologies and approaches, and ultimately help form and articulate patents/IP to garner further investment.

Combining Sources of Early-Stage Funding

Depending on the size of a startup and the stage of business development, companies can also avoid dilution by applying for multiple government loans and grants. Loans bear the cost of interest in return for less operational oversight, while grants serve as a non-repayable contribution that is contingent on meeting various qualifications.

The National Research Council of Canada’s Industrial Research Assistance Program (IRAP) offers an especially rewarding means of financing SMEs qualifying in technology innovation. IRAP funding typically ranges between $50k-250k, making it a great opportunity to subsidize research and experimental efforts without diluting shares or falling beholden to acquisitive creditors. The Ontario Centres of Excellence (OCE) is another great source to receive innovation funding through industry-specific programs with special emphasis on digital and software work within the information and communications technology (ICT) sector.

Acquiring Private Sources of Funding

Whenever a business does decide that private investment is the best way forward or bridge funding is required to overcome particular fiscal restraints, SR&ED financing can help to fill the funding gap in a non-dilutive manner, prior to subsequent funding rounds.

While the SR&ED tax credit program is critical for the viability of startup companies in Canada, the main challenge with the SR&ED program is that it often takes over one year before the funds can be received by the applicant. SR&ED financing helps to facilitate and alleviate existing cash flow issues in early-stage businesses, as startup companies often have difficulty commercializing their concepts after exhausting their previous rounds of funding. In this way, accrual debt financing in the form of SR&ED financing allows early-stage companies to bridge the funding gap and extend the runaway until the next funding round, thereby bolstering their business plans.

Moreover, a successful track record of securing government funding, such as SR&ED tax credits, can appeal to private investors by reducing the perceivable risk for funding product development.  

All of this funding information is sometimes a lot to process, but NorthBridge Consultants is here to help. If you have any questions or want to learn more about SR&ED for startups, please contact us.

Co-authored by Philip Finkelstein, and Ela Malkovsky, Technical Writer/ Editor–in-Chief at NorthBridge Consultants.

New FedDev Funding For Rural Innovation Projects

SMEs operating in rural Southern Ontario within priority sectors such as advanced manufacturing, clean technology, digital industries, and food processing and Agtech may be eligible to receive a non-repayable grant to cover up to 50% of eligible project costs for a maximum of $100,000 through the FedDev Rural Innovation Initiative (RII) Regional stream. 

FedDev is dedicating $100M, over the next three years, to spur investment in rural southern Ontario. The recently launched Rural Innovation Initiative (RII) Regional Stream aims to invest in local projects that support high-potential enterprises and the transition of traditional rural sectors and business to the new rural economy.

Supported projects will strengthen competitiveness, productivity, business growth, process innovation, new market access, creation and retention of employment opportunities, the re-skilling of the industrial workforce, incremental sales and increased profitability.

Priority will be given to projects that advance the economic participation of youth, women, Indigenous peoples, persons with disabilities, newcomers, and visible minorities.

Applications will be accepted on an ongoing basis starting on May 21, 2019, with project activities to be completed by December 31, 2020.

Eligible Costs may include:

  • Labour
  • Expertise
  • Non-Capital
  • Capital

Eligible Activities may include:

  • New materials
  • Cutting edge services software
  • Integrated solutions
  • Cloud computing
  • Rapid prototyping and engineering
  • Robotics and automation
  • Machine learning
  • Extended intelligence, etc.

Is your company looking for funding to support innovation and business growth initiatives? Contact us today to discuss your projects and find out how much funding your company could receive.

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  • NorthBridge Consultants' Government Funding Blog is dedicated to bringing businesses news and information to help them identify and access the most appropriate government funding programs.

    We offer opinions and insider information that can provide a pulse on government initiatives, the health of the Canadian economy, and firsthand thoughts from Canadian business owners.

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