9 February 2024

Nowadays, investing in innovation is essential for a country’s economy and development. Therefore, the Government of Canada has many programs related to Research and Development (R&D), offered to help companies, with the two most popular being the Scientific Research and Experimental Development (SR&ED) and the Industrial Research Assistance Program (IRAP). Although both are programs created to boosting Canada’s innovation system and helping Canadian-based companies, they are not the same thing.

The IRAP is a funding administered by the National Research Council (NRC) of Canada since 1962. One of the Canada’s biggest tax incentive programs, the SR&ED is offered by the Canada Revenue Agency (CRA), and the intendent objective is described by its overview as: “to encourage and support different types of companies to explore and experiment with the development of technology projects in Canada”.

But beyond that, what really differentiates them?

SR&ED vs. IRAP

The first key difference to be highlighted is that SR&ED is a tax credit, while IRAP is characterized as a grant. A tax credit provides financing after expenses are incurred, and a grant – as in the IRAP case – requires monthly refund requests after the initial application and acceptance.

For Canadian Controlled Private Corporations (CCPC), the SR&ED program offers a refundable tax credit disbursed after the CRA receives the claim – which means that, by claiming SR&ED each year, the previous year’s refund helps sustain the cash flow for the following period. For non CCPCs, in the other way, the program is a non refundable tax credit. In first-timing claiming, the retroactive funding will not arrive until after the end of the fiscal year. Also, there is no limit for SR&ED in the budget or funding stats, and the program stays available to apply all year round.

IRAP, in the other way, has an annual budget of $157 million, available in a first-come-first-served mold – which means that, if the regional budget for IRAP has depleted, applicants will have to wait for the next year. Neither SR&ED nor IRAP have industry specific criteria, so any company could be eligible if they are conducting eligible experimental activities.

Eligibility

SR&ED:

  • Company of any size operating in Canada;
  • Expect for salary costs and expenses such as material, third-party payments, and overhead costs.

IRAP:

  • Companies with less than 500 full-time employees;
  • Focuses specifically on the salary and fee costs of Canadian subcontractors related to R&D projects.

The two programs operate in distinct ways and are managed by separate organizations, which, despite the similarities and common objective, causes many structural differences. It’s important to notice that it’s possible for a company to benefit from both programs at the same time but, since some expenses could both be covered by SR&ED and IRAP, having received IRAP funds throughout the project would reduce the amount of SR&ED. Furthermore, being eligible for one program does not guarantee eligibility for the other, and you need to pay attention to which program suits your project and company to ensure smooth and successful progress.

How can we help you?

FI Group is a global tax consultancy that helps industry obtain tax credits and incentives, with more than 1,800 qualified employees, counting on specialists from different fields, committed to supporting companies of all sizes and in all sectors of activities. With our expertise, FI Group specialists can support your company in identifying qualified activities. We specialize in helping companies finance innovation and secure funding for their R&D activities through the comprehensive management of the R&D Tax Credit.