Leveraging IRAP As Well As The SR&ED Tax Credit

To Maximize Your Companies Innovation

May 20, 2021

The two most lucrative incentives for companies incorporated in Canada to take advantage of are The National Research Council of Canada Industrial Research Program (NRC IRAP) and the Scientific Research and Experimental Development tax credit (SR&ED).  Many companies are familiar with one over the other however are not aware that they can claim both incentives to maximize their research and innovation. Below is a brief comparison between the two programs as well as an example of how a company can claim both IRAP and SR&ED.

IRAP

The NRC IRAP program is one of Canada’s longest-standing government assistance programs introduced over 70 years ago for Canadian incorporated small and medium-sized companies with less than 500 employees conducting research or innovation. The main goal of the program is to boost the Canadian economy through job growth as well as bringing new and innovative Canadian products/services to the market. To apply for an IRAP claim, a company must first contact NRC. This conversation with NRC will lead to a decision on whether to proceed with the application or not. If selected, a designated Industrial Technology Advisor (ITA) will be assigned to your company and will provide templates and advice throughout the process of submitting the claim. The company must provide a business plan, technical write-ups, company objectives, and a budget forecast of how the funding will be allocated, upon when the ITA will decide if they are approved for funding or not. If approved by the ITA, monthly reporting will be required to show how the funds are being allocated and spent. IRAP funding can award as little as $50,000 to $10 million per applicant.

How IRAP is different from SR&ED

• IRAP is a funding pool where every ITA in their specific region has allocated dollars to spend. Once the total allocated dollars have been funded by a given ITA, no further funding will be given until the following year’s application. This differs from SR&ED as there is no limit to SR&ED funding. As many companies across Canada can apply for SR&ED throughout the year.
• There is no hard deadline when applying for IRAP. Since NRC’s fiscal year-end is March, companies are encouraged to capitalize on funding as soon as possible (April-August). With SR&ED, a company has 18 months from their fiscal year-end to apply or the claim will not be accepted.
• IRAP only covers labour costs: a maximum of 80% for T4 employees and 50% for sub-contractors related to the R&D projects. SR&ED covers labour costs, additional overhead expenses, and materials consumed.
• Companies approved for IRAP must show that they can cover the remaining funds not allocated by IRAP for their project. This is the monthly update that the ITA will conduct to make sure the allocated funds are being utilized correctly. With SR&ED, once approved the funds can be utilized by the company in any way, they see fit. No further follow-up is required.

Claiming both IRAP & SR&ED

IRAP only covers labour costs: a maximum of 80% for T4 employees and 50% for sub-contractors related to the R&D projects. SR&ED covers labour costs, additional overhead expenses, test materials, subcontractors and research payments. Since IRAP only covers limited costs, a company would be missing out on thousands of dollars in a cash or credit return if they are not applying for SR&ED. 

Below we have illustrated an IRAP claim on its own versus a claim with IRAP and SR&ED included.

As you can see with the example provided above, by applying for the SR&ED tax credit in Ontario, this company increased their return on innovation by $33,895.05.

For additional information on the IRAP program and how to maximize your innovation return by stacking both the IRAP and SR&ED program together, please contact ABGi Canada.