There are a host of tax credits and grants your company can claim or apply for if you are partaking in any development or research type activities. Two of the most generous programs offered by the Canadian federal and provincial governments are the Scientific Research and Experimental Research tax credit (SRED, SR&ED or “shred”) and the Industrial Research Assistance program (IRAP). In this post we’ll review IRAP vs SRED and provide some insight on how to benefit from them.
IRAP vs SRED: Timing Is Everything
If you are in the planning or early stages of your product development life cycle and have a plan on how to commercialize your product, now is the time to apply for your IRAP grant. While more mature projects are welcome to apply for IRAP funding as well, you can maximize your funding by applying early as the IRAP grant, if awarded, will subsidize up to 50% of your project’s costs and is classified as a non re-payable loan or subsidy. While there is no deadline to apply for the IRAP program, it is important to note that funding for the IRAP grant is a budgeted item in the Canadian Federal Budget, hence there is a limit to the funds IRAP can disburse. Hence it’s prudent and may be strategic for you to apply early in the government of Canada’s fiscal year, which runs between April 1st and March 31st for a given year.
The SR&ED or “shred” program subsidizes projects in the form of a refundable tax credit and is governed by the CRA. Hence out of pocket expenditures must already have been incurred to benefit from the SR&ED tax credit program. Moreover, the SRED program has a strict 18-month deadline for which an application needs to be filed, in tandem with your corporate tax return, for a given fiscal year. For example, assuming a company with eligible expenditures has a fiscal year end of December 31, 2014 they will have a hard deadline to file for the associated SR&ED tax credits of June 30th 2016. As a rule we tell our clients filing amended claims to plan to file at least 3 months before this deadline to ensure their submissions will be accepted.
IRAP vs SRED: Payment schedules
Understanding the different types of funding schedules is another important step in your pursuit to determine whether the SR&ED or IRAP funding program is right for you.
As one can only apply for the SRED tax credit after the fact it is important to know that CRAs service standards are to respond to claimants within 120 calendar days for refundable claims and 365 days for non-refundable claims. If you make an adjustment to your already submitted refundable SR&ED claim, the service standard increases to as long as 240 calendar days. Then there’s each provinces individual delays which can add 30-120 calendar days of additional waiting time to receive the provincial portion of the SRED claim. With such delays it is important to know that you must have the proper funds allocated in your budget to support your SRED eligible activities.
IRAP on the other hand will fund your project on a 12 months basis as you submit monthly expense reports to the NRC representative. While this certainly stretches your budget to infuse cash into your company and accelerate your projects, the overhead involved in claiming the program can be a burden for some clients.
IRAP vs SRED: Competition
Finally it is also important to understand just how competitive both the SRED and IRAP programs might be.
Firstly the SRED program managed by federal and provincial tax agencies is not subject to a fixed budget. As such all projects that have met the eligibly guideline and that have filed a proper claim will typically receive some kind of funding. While there is no budget per se for the SR&ED program, making it the least competitive of the two CRA has recently instituted tougher policies to thoroughly review applications and throw out poorer claims.
IRAP on the other hand has a cap on its funding of approximately 270 million dollars. Moreover, IRAP applications must include commercialization plans along with justification for the work being submitted for subsidy as research and development or leading edge type work, while funding is also subject to project and progress evaluation. However, the benefit of receiving the funds as expenses are incurred are a boon to many Canadian companies.
Used correctly both the IRAP and SRED program can be integral to funding your research and development projects to fruition. For any questions, feel free to contact us at email@example.com or call us at 514-865-3007 for a free consult