SR&ED and NRC IRAP are both substantial business support programs offered by the Canadian federal government. However, one of the major differences between the 2 programs is that NRC IRAP endorses direct up-front funding, whereas SR&ED is a tax credit for expenses that have already been incurred.
In light of the recent Jenkins report, there has been significant discussion over the benefits and drawbacks of direct funding. Direct funding allows the government to “pick winners” and scrutinize where funding is allocated, according to government policy. Because companies who receive direct funding have to present a business case for each and every funding application, it allows the government to put “checks and balances” in place to ensure that the funding will be utilized for its intended purpose. Direct funding mechanisms were pivotal in building capabilities in what became leading sectors in Ontario.
However, the downside of direct funding models, is that, according to a research paper by Nelson and Langlois (1983), the practice of “picking winners” by the government was the least successful form of government support. Direct funding generally creates a larger administrative burden, especially to smaller enterprises and start-up ventures, who can ill afford to have an in-house grant writing team. A Canadian firm intent on bringing its technology to market will likely be deterred from seeing assistance through direct funding because the lengthy approval process can delay the onset of time-sensitive work.
Secondly, a move towards direct funding could threaten the global competitiveness of Canadian enterprises. International trade agreements, such as the World Trade Organization Agreement on subsidies and Countervailing Measures, cap direct subsidies to business. For example, the controversial US-Canada lumber dispute revolved around Canadian stumpage fees being too low, making the fees de facto subsidies.
Finally, under a direct funding model, there is no legal process to appeal or obtain redress for disagreements between the administrators and the applicants for the funding. A direct funding approach has no legislative support, and applicants can easily be discriminated upon if their objective does not directly advance government policy. On the other hand, the tax credit system provides legislated rules so that any dispute about eligibility or payment can be heard by the courts.
There are arguments to be made for both tax credits and direct funding. However, at the end of the day, it is important to keep in mind that entrepreneurs (and the start-up ventures they create) are the backbone and future of our economy. It is paramount that these start-up ventures obtain the upfront capital necessary in order to undertake risky ventures, some of which will evolve and transform the economic landscape both in our country, and around the world. Will the next RIM please stand up?
Northbridge Consultants is the industry leader in maximizing monetary gains for Canadian Businesses through the Federal SR&ED Program. We accomplish this by identifying more SRED-eligible projects, and by supporting our clients every step of the way (from the time we first tour their facilities, through the preparation of all necessary documentation, right up until the CRA Reviews are completed). This approach has lead to a one hundred percent acceptance rate for claims we have prepared during our twenty-five year history, and our clients typically receive ninety-five percent of the amount submitted on their behalf.
In addition to SR&ED Tax Credits Canadian Businesses can also obtain funds in advance of their projects. The National Research Council provides funding for activities that generate new employment in the technology or science fields through their IRAP Program. Generally, fifty percent of project labour costs are provided. In special circumstances costs for equipment, studies, lab fees, specialized materials and contractor fees are also funded.
Another federal program available to Canadian Industries is the ecoENERGY Retrofit Incentive. This program encourages businesses to modify buildings, equipment and systems through upgrades to reduce the facility’s energy use. The program provides up to twenty-five percent of project costs to a maximum $50,000 per application. Using energy more efficiently helps industries to be more competitive and reduces greenhouse gas emissions and air pollution leading to a cleaner environment for all Canadians.
Your Northbridge Account Manager will assist you in understanding NRC Programs, and how they can be utilized in conjunction with your SR&ED Tax Credit claim.
The Industrial Research Assistance Program that the National Research Council of Canada has (NRC-IRAP) has long been of assistance to companies in Canada who need funding for research purposes. About a month ago, NRC-IRAP announced a new review process: the Small Project Accelerated Review Process.
This process was designed to help grow the business of SMEs in Canada – help small and medium sized businesses not just with R&D efforts, but with market research or process changes that will help benefit and grow your company.
What does this mean for you?
Quite simply, if you are a small or medium sized business, and are only doing a project that requires a maximum contribution of $50,000 from NRC-IRAP then the NRC-IRAP has created a streamlined process to get you your funding FAST.
So what kind of projects are acceptable for the accelerated review process?
- R&D projects that are limited in scope and nature
- Lean manufacturing/productivity studies
- Prototype engineering
- Development of business plans
- Branding creation and enhancements
- Market research studies
There are of course a lot of other types of projects acceptable for the review process, but this is just a small selection to give you an idea of the great variety there is that is applicable. You can get more information about this new funding process here.
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