Effective May 23, 2016, the Government of Ontario decided to reduce SR&ED Tax Credits on SR&ED expenditures. What does this mean for Ontario taxpayers applying for SR&ED Tax Credits? It means that there is a 4.2% reduction in the tax credits an Ontario Corporation can expect to receive. Table this with past reductions from the 2009 federal budget, which resulted in the SR&ED proxy amount being reduced for eligible SR&ED employees by 6%. And if a taxpayer hired external SR&ED contractors, the reduction to this portion of SR&ED eligible expenditures was 20%. Since 2012, SR&ED Tax Credits have decreased by approximately 10% to 30% (depending on the inclusion of contractors).

What can a taxpayer do to make up for this loss in government incentives? Have you considered Canadian Government Grants? There are several grant opportunities that should be considered to help you offset the reductions in your SR&ED Tax Credits. Government Grants are stackable, so you will not lose the opportunity to apply for SR&ED Tax Credits.

Grants to Consider:

NRC – IRAP

The Objective of this program is to fund Innovative technology development and new product or process development as part of R&D activities. If you apply before the start of an R&D project, your company could receive a cash grant in the following ranges:

  • Small Projects (ARP): Up to $50,000
  • Mid-size Projects: Up to $150,000
  • Large Projects: Up to $300,000

Ontario Centres of Excellence (OCE) – TalentEdge

There are two streams of funding available for applicant businesses to hire graduate students and post-graduate fellows for project-based industry-driven R&D initiatives. If you apply before hiring a student to work on your R&D, your company could receive a wage subsidy as below:

TalentEdge Internship Program (TIP): 4-month long placements for current Ontario-based college and university students (graduate and final year undergraduate). It is valued at $20,000. OCE will contribute $10,000 in cash, which is matched by the applicant company in the form of $5,000 cash and $5,000 in-kind contributions.

TalentEdge Fellowship Program (TFP): 12- to 24-month long placements for Ontario-based PhD graduates and post-doctoral fellows, valued at $85,000 per annum. OCE will contribute $35,000 in cash which is matched by the applicant company in the form of $25,000 cash and $25,000 in-kind contributions.

How Do I Stack My Funding?

What do we mean by stackable? Stackable means that you can receive both a government grant and SR&ED tax credits toward the same project, albeit with some restrictions. Specifically, per the SR&ED guidelines, a requirement is that a taxpayer net any government funding received toward eligible expenditures from their qualified expenditure pool. To illustrate this, here is an example of how you can increase your R&D project funding by over 30% when you take advantage of both SR&ED and IRAP Programs.



Before Government Changes

After Legislative Changes

% Change

T4’d Salaries Employees eligible for SR&ED

$50,000

$50,000



Proxy

$27,500

$27,500



Costs Eligible for ITC’s

$77,500

$77,500











Ontario Innovation Tax Credit

$7,750

$6,200

-20.0%

Ontario Research & Development Tax Credit

$3,139

$2,496

-20.5%

Federal Investment Tax Credit

$23,314

$24,082

3.3%

Total Funding

$34,203

$32,777

-4.2%









Additional funding with IRAP of half of salaries



$14,427



Adjusted total

$34,203

$47,204

38.0%

If you are in a niche industry like Clean-Tech, Agri-Tech or Cyber Security, there is a range of other specific funding programs that your projects may qualify for. Businesses working on large initiatives with a potential for high degree of innovation, or market disruption can also consider putting in an application for the Federal Strategic Innovation Fund (SIF).

There are advantages of working with a qualified tax credit and government grant service provider that looks at your entire funding lifecycle. These advantages include structuring your grant applications and project plans that minimize the overlap between the defined SR&ED project and other non-R&D innovation activities required to develop the new product or process that you may be eligible to receive government grants towards. This allows you to minimize the amount of government funding that needs to be applied against your SR&ED tax credit calculation, thus maximizing your overall funding coverage. There is a whole range of activities related to developing innovative products that are not qualified as SR&ED activities (just ask CRA!).

In our experience over the last 30 years, interpreting the SR&ED guidelines has been a key strength in identifying countless SR&ED and grant opportunities. This has helped us structure clients’ development projects and funding applications accordingly.

Contact us today for a complimentary assessment of your eligibility for R&D funding and government grant opportunities: [email protected]

Christine Tzimika is a senior financial analyst at RDP with over ten years of experience in SR&ED and other tax credit services.