Posts Tagged ‘NRC’

IRAP Announces Support for Early Stage Firms

Accelerators and incubators based in Canada that support the development and growth of start-up companies can receive funding from the Industrial Research Assistance Program (IRAP).  The Canadian Accelerator and Incubator Program (CAIP) will provide non-repayable funding over a five year period to a limited number of qualified applicants.  To ensure that the funding is allocated to the appropriate sector needs, the program will be assisted by a Venture Capital Expert Panel, which will be  assembled by the Minister of Finance.  The National Research Council of Canada (NRC-IRAP) is accepting proposals until October 30, 2013.

The National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) is Canada’s first-class innovation program that supports small to medium sized enterprises (SMEs). IRAP is integral to the NRC and has been recognized world-wide for its contributions to innovation in Canada.

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SR&ED versus IRAP

Scientific Research and Experimental Development (SR&ED) and the Industrial Research Assistance Program (IRAP) are two of the largest government incentive programs in Canada.  The chart below details some of the major differences between the 2 programs.

Criteria Scientific Research and Experimental Development (SR&ED) Industrial Research Assistance Program (IRAP)
Administration SR&ED is administered by the Canada Revenue Agency (CRA) IRAP is administered by the National Research Council (NRC)
Type of program SR&ED is a tax credit for eligible R&D expenditures incurred as per the federal Income Tax Act IRAP is a government grant program
Governance Financial and technical reviews administered by the CRA, after application Upon approval, the NRC requires regular reporting of progress when compared to deliverables
Amount Up to 35% as a refundable tax credit (federal), plus provincial tax credits.  20% non-refundable tax credit for foreign-owned or public corporations IRAP non-repayable grants vary from $15,000 to $1 million
Application Process Submit technical narratives and T661 [Scientific Research and Experimental Development (SR&ED) Expenditures Claim] with tax returns or amended tax returns Contact Industrial Technology Advisor for consultation.  An IRAP application requires a financial business plan and technology plan

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Direct Government Funding – Benefits and Detriments

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?

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