Innovation has always been a priority for the Canadian Government. There are plenty of programs related to research and development (R&D) offered to help Canadian-based companies. The two most popular tax incentive programs are the Scientific Research and Experimental Development (SR&ED) and the Industrial Research Assistance Program (IRAP).
Claim SR&ED or IRAP? To get tax credits and to funding your business, Canadian companies need to know how to choose the proper one based on their unique advantages.
What is IRAP?
IRAP is a funding administered by the National Research Council (NRC) of Canada since 1962. As a government grant, IRAP provides cash reimbursements for Canadian companies to support their R&D projects. All the contributions are non-repayable.
More information is provided in NCR IRAP website.
What is SR&ED?
According to the Overview of SR&ED:Â
The objective of the SR&ED program is to encourage and support different types of companies to explore and experiment with the development of technology projects in Canada.
Offered by the Canada Revenue Agency (CRA), the company can get tax returns from SR&ED for Research and Development (R&D). SR&ED is one of Canada’s largest tax incentive programs.Â
Now, let’s focus on the most concerned question:
Compared to SR&ED and IRAP, what are the differences between the two programs?
SR&ED vs IRAP: Program Overview
Although the requirements related to the objectives around technological advancement, technological uncertainties and experimental work are identical, there are a number of differences between the two programs. First of all, let us quickly go over the basic information.
| Â | SR&ED Tax Incentive Program | IRAP |
| Maximum Funding (Returns / Credits to Get) | No limit | CAD$10 million per project |
| Number of Projects | No limit | 1 project per year (each company) |
| Program Budeget from Government | No limit, gives out approximately C$3 billion per year | C$157 million per year |
| Condition | Allow to consider previous spends / expenses | Require funding proposal before project starts |
Government Budget
As a tax credit, SR&ED has no limits on the budget. The Canadian government gives out approximately $3 billion annually on average. In comparison, the annual budget of IRAP is $157 million because it is a federal grant.
Funding Stats
There is also no limit for SR&ED in this category, while IRAP only allows one project per year for each applicant. The maximum funding for each project is $10 million.
SR&ED vs IRAP: Eligibility
One of the key differences between SR&ED and IRAP is eligibility, which includes eligible claimants and eligible costs:Â
| Â | SR&ED Tax Incentive Program | IRAP |
| Company Size | Any size company operating in Canada | Less than 500 full-time employees |
| Business type | Only 3 types are not suggested to apply. (Read More: The truth of 5 most common misconceptions about SR&ED) | Eligible for-profit business |
| Eligible Costs | Expect for salary cost, also covers expenses such as materials, third-party payments, and indirect costs | Focuses specifically on salary costs and Canadian subcontractor fees related to R&D projects |
Eligible Claimants
Although SR&ED is a program mainly focusing on SMEs, businesses of any size operating in Canada can apply. In contrast, the eligible claimants for IRAP are for-profit businesses with less than 500 full-time employees.
Eligible Costs
In terms of eligible costs, IRAP focuses specifically on salary costs and Canadian subcontractor fees related to R&D projects, but SR&ED covers other expenses such as materials, third-party payments, and indirect costs. Since IRAP covers salary and subcontractor costs at a higher rate, SMEs with labor-intensive R&D projects might be more suitable to apply.
SR&ED vs IRAP: Timeline
Both of the popular R&D funding programs also differ in the application timeline. SR&ED allows companies to consider the previous spending on R&D activities, while IRAP is very pre-planning focused. Under the circumstances, you need to apply for IRAP before you start doing your project. Other differences in this category include:Â
| Â | SR&ED Tax Incentive Program | IRAP |
| Availability | All Year Round | First-come, first-served – until the regional budget is depleted |
| Processing Time | Feedback: 6-8 Weeks Total Time: 3-6 months | 1-3 months |
| Timing of Payout | One Time (Full) Payment | Monthly Installments (within project duration) |
Availability
SR&ED is available to apply all year round, while IRAP is a first-come-first-served program. In that case, if the regional budget for IRAP has depleted, applicants will have to wait for the next fiscal year.
Processing Time
Once companies submit the SR&ED application, they will likely receive feedback from the CRA within 6-8 weeks, although the actual funding may take a longer time to be reimbursed. In comparison, IRAP will take 1-3 months on average for successful applicants to receive the money.
Payment
For SR&ED program, applicants will receive about 60% of their eligible costs after approval by the CRA. But IRAP functions quite differently: a successful IRAP application will be reimbursed monthly over the project duration, covering 50-80% of the eligible expenses.
Summary
Despite some similarities, these two programs operate in different ways and are managed by different organizations. Even though both SR&ED and IRAP focus on R&D, companies still need to be careful as eligibility for one program does not necessarily ensure eligibility for the other. Regardless of the program you choose, it is essential to concentrate on your projects and record all the eligible expenditures and progress.
