Research and development of new technologies and products is a crucial aspect of any business’s ability to survive. Whether you’re an upstart tech firm or a major enterprise, putting money aside for development is a constant concern.
“Any company that isn’t doing ongoing innovation will have problems down the road,” Tony Rahilly, director general of the National Research Council Canada’s (NRC) Industrial Research Assistance Program (IRAP). To facilitate this innovation and help get your developmental projects off the ground, industry experts advise all companies to take advantage of the national and provincial incentive programs the Canadian government has to offer. The trouble is that many businesses don’t know where to start.
For companies looking for tax credits, Revenue Canada’s Scientific Research and Experimental Development (SRED) program should be the first stop. The program gives tax breaks to companies developing and researching new technologies. Activities that would qualify for the tax grant include experimental development work aimed at creating new materials, devices, and products; basic and applied research that advances the scientific knowledge of the application being developed; and various other engineering or mathematical work related to the project.
Canadian-controlled private corporations (CCPC) will earn an investment tax credit (ITC) of 35 per cent up to the first $3 million of qualified expenditures for SRED carried out in Canada, and 20 per cent on any excess amount. Other Canadian companies, partnership and trusts will see a 20 per cent tax credit for SRED expenditures in Canada. Businesses using the program can apply for tax credits on expenditures such as wages, materials, machinery, equipment, some overhead, and SRED contracts.
“Basically any business that is involved in basic or applied research or in developing new and improved devices or products may apply for this program,” Catherine Jolicoeur, spokesperson for the Canada Revenue Agency, said. “SRED is the single largest source for federal government support of research and development in Canada. The program provides $4 billion a year in investment tax credits, with 75 per cent of claims coming from small businesses.”
Bernard Courtois, president and CEO at the Information Technology Association of Canada (ITAC), called SRED a solid program and urged companies who want to create a new service or product line to apply. “Most larger companies realize the benefits, but we’ve actually had to get the word out to a lot of smaller firms that the SRED tax credits are very beneficial to them and are, in fact, intended for them,” he said. “Some companies think it’s too much trouble and the forms are too complicated. It’s definitely worth it though, and you can actually hire experts to do all the filing for you.”
And while Courtois admitted that some offices around the country are more difficult than others in accepting the projects that qualify for the program, he said companies should persist in applying and that Revenue Canada is also trying to do their part by developing simplified claims forms well as an online self-evaluation tool.
“For the fall of 2008, we plan to launch an eligibility self-assessment tool that includes a questionnaire that companies can answer to see if they can advance in the eligibility process,” Jolicoeur said. But despite this hang-up, Courtois agreed that SRED is one of the best tax credit programs in the world. In fact, it’s so important that NRC-IRAP director Rahilly said it’s the first question his staff asks to tech startups looking for funding.
“If they haven’t heard of SRED, we tell them that’s the first thing to take care of,” Rahilly said. And while SRED provides money after the fact with its tax breaks, the NRC-IRAP can often fill in the blanks with startup cash flow or consultancy services.
“We were the first and earlier investor of a strong company that you may have heard of called Research in Motion,” Rahilly said. “In the late 80s and early 90s, we provided some funding to them and other related services when the company was really just a dream.”
Canadian small and medium-sized enterprises (SMEs) with less than 500 employees and undertaking a technological project are eligible for the program. Support can come in areas such as technology expertise and advisory services from IRAP’s network of several hundred national engineers, scientists and entrepreneurs, youth employee strategy services from Human Resources Skills Development Canada, and financial assistance for research and technology development.
“If you have a piece of technology with an opportunity in the marketplace, we’ll work with you on the development plan of the project and in many cases, are able to offer our expertise on how to do the project,” Rahilly said. “We have 260 industrial technology advisors around the country and each one of them has a technical background.”
“We also try to identity whether or not there is a market,” he added. “The best technology is not always the winner in the marketplace. You need a strong marketing plan as well, so we can help companies get an early focus on their customers.” For the young graduate program, Rahilly said IRAP will pay for half of a graduate’s salary for six months. The employees can range from having technical skills to being trained in marketing or accounting.
“Over the past couple of years, 70 per cent of graduates have stayed with the company past that project time and in a number of cases, we’ve seen that four or five years later, these graduates are in senior positions with the company,” he said.
In terms of the money that IRAP typically dishes out, Rahilly said that the organization often pays 50 to 70 per cent of the labour costs involved with a particular project, with those numbers going as high as half a million dollars for some projects. In addition to taking advantage of both these national programs, experts like ITAC’s Courtois advise companies to check with their respective provincial economic development ministries, which can point businesses in the right direction.
“There are programs in just about every province,” he said. “In Ontario, for example, the Next Generation of Jobs fund is out there. Businesses can also find programs that help them with market readiness and through the early stages of marketing the innovations they create.” Courtois also referenced the Ontario Centres of Excellence and Alberta’s recent $100 million fund to help startup technology businesses.