SR&ED and IRAP – Detail Comparison and Explanation

Funding Program - SR&ED - IRAP

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

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. 

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.

 SR&ED Tax Incentive ProgramIRAP
Maximum Funding (Returns / Credits to Get)No limitCAD$10 million per project
Number of ProjectsNo limit1 project per year (each company)
Program Budeget from GovernmentNo limit, gives out approximately C$3 billion per yearC$157 million per year
ConditionAllow to consider previous spends / expensesRequire 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: 

 SR&ED Tax Incentive ProgramIRAP
Company SizeAny size company operating in CanadaLess than 500 full-time employees
Business typeOnly 3 types are not suggested to apply.
(Read More: The truth of 5 most common misconceptions about SR&ED)
Eligible for-profit business
Eligible CostsExpect for salary cost, also covers expenses such as materials, third-party payments, and indirect costsFocuses 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: 

 SR&ED Tax Incentive ProgramIRAP
AvailabilityAll Year RoundFirst-come, first-served – until the regional budget is depleted
Processing TimeFeedback: 6-8 Weeks
Total Time: 3-6 months
1-3 months
Timing of PayoutOne Time (Full) PaymentMonthly 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.

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