IRAP and SR&ED – A Comparison of 2 Key Government Incentives for Experimental Development

The Nation Research Council’s (“NRC”) Industrial Research Assistance Program – IRAP –  and the Canada revenue Agency’s Scientific Research & Experimental Development (“SR&ED”) Program have both been around for decades in essentially the same form.

Each year in April the Federal Government ‘replensishes’ funding for IRAP. Funding for IRAP in the 2015-2016 fiscal year was ~$293 million.

By comparison SR&ED funding was about $4.5 billion (including provincial SR&ED incentives).

$293 Million IRAP vs $4.5 Billion SR&ED

Theoretically the main difference between the 2 programs is that you need to receive approval from the NRC to obtain IRAP funding. That means meeting with an IRAP research technology advisor (“RTA”) before submitting a proposal.

Since applicants are competing for a very limited amount of money,  RTAs will make judgments about the quality of your technology and management’s ability to successfully commercialize it. They will consider such factors as early revenue or “traction” and employment growth (or potential for employment growth).

By contrast companies are entitled to benefits under the SR&ED program, if they meet the legislative requirements and submit a claim. While eligibility for both programs can certainly be seen as ‘subjective’, IRAP proposals effectively compete with each other for a much smaller (6.4%) amount of funding.

Typically IRAP projects will reimbuse about 75% of eligible wages. If that same project were eligible for SR&ED incentives, the incentive would be about 64% (in BC with provincial SR&ED rates at 10%).

In most cases, companies that are successful in getting IRAP funding can also submit claims for SR&ED. The resulting SR&ED claim will be reduced, however stacking the 2 incentives could net claimants as much as 100% (or a little more) of eligible wages.

Investors and entrepreneurs both like “non-dilutive financing”, since it doesn’t reduce (or dilute) their ownership percentage. Certainly companies engaged in eligible SR&ED should submit claims.

In comparison, companies considering IRAP should seek advice from the NRC to gauge their interest before submitting proposals. Occasionally RTAs can provide valuable advice to prospective claimants, regardless of whether a proposal is submitted.