With the tightening of the economy, companies are looking for ways to be more competitive while lowering costs associated with developing or improving their products and processes. To help support innovation in its many forms, no fewer than 5,000 government (federal and provincial) innovation-related funding programs are presently available.
In the past, indirect government funding such as the SR&ED program and other tax credits has been the primary choice for organizations seeking financial support for their innovation projects. In fact, a recent study on the funding of innovation in Canada revealed that, far and away, SR&ED tax credits have been the most popular government funding option to date, with 62% of eligible companies filing claims. While this figure indicates that there are still many companies not claiming SR&ED, it is in stark contrast to the only 25% of eligible companies turning to direct funding in the form of loans and grants. With direct funding such as grants covering up to 50% of eligible expenditures until program funds have been depleted, it is surprising that more companies are not incorporating government funding into the innovation initiatives.
Still, despite the abundance of available programs in Canada, 26% of the study’s respondents had never applied for either indirect or direct innovation financing. Most said they had not applied because they were convinced they did not qualify, not because they did not know about the programs. So while there is awareness that several types of government funding options exist, many companies are uncertain about the application criteria and the processes associated with them.
With Canada dropping below the top 10 most innovative countries on the 2012 Global Innovation Index, the federal government decided to introduce several changes to the budget that year. Most of the changes were consistent with the recommendations of the Jenkins Report on federal support for R&D. Issued in October 2011, the Jenkins Report supported a shift in R&D support from indirect funding via the SR&ED tax credit system to direct R&D support via increased government grants, additional funding allocated for venture capital initiatives, and improved government procurement practices to favor innovative driving innovation. As a result of the Jenkins report, 2012 became a landmark year for the funding of innovation in Canada, as well as for the evolution of funding initiatives over the last four years. As new funding has been introduced and the administration of most initiatives has been tightened, important challenges and considerations that had always existed have now become more relevant than ever.
Your challenges – SR&ED
Achieving the SR&ED tax credits you’re entitled to raises the following considerations:
- Am I compliant with the latest SR&ED application policies?
- Have I identified all eligible projects and activities?
- How do I make sure these projects are documented contemporaneously and written with the correct technological positioning?
- How do I ensure that all claimable time & expenditures are accounted for?
- When I file my claim, am I ready to be called into an audit?
- Can I streamline the technical and financial gathering process to minimize impact on my critical R&D resources?
- How do I validate projects and effectively gather data across all sites in Canada?
Your challenges – grants
- What government funding initiatives is my company eligible for?
- How much funding can my company receive?
- How do I find out about program changes?
- How do I track thousands of programs?
- How do I assess the impact of a potential direct funding program on my SR&ED tax claim?
- Where do I get the expertise to properly fill in the program application forms and have the best chance at receiving funds?
- What will be the impact on my tax credit claim if I receive a grant, loan or procurement program award?
Looking back while planning ahead
Planning for government funding involves cross-referencing expenditures for past and future projects with the categories below to achieve a better understanding of where your chances of obtaining funding lie. While objectives vary from program to program, sometimes combining the needs of multiple internal projects might help you achieve certain milestones that could impact your chances of getting approved.
- Capital expenditures
- Energy efficiency
Looking back on related activities that have already been conducted is important because tax credits allow you to claim past expenses. However, planning ahead is also critical, as most grants and loans will only provide funding for future projects. Having a “wish list” of projects you could undertake if the government was providing support for your plans to the tune of +/- 50% helps to get the innovation juices flowing while setting realistic expectations for your organization.
Researching available funding programs without first listing out expenditures will likely result in an unfocused search and a long list of available programs. This could lead to confusion about which programs you qualify for and where to begin. Mapping out an innovation strategy that is aligned with your organization’s overall goals will help you zero in on the type of funding you will need to achieve your goals.