Navigating the government funding landscape
September 20, 2012 | By Michelle Morra
The Canadian government spends $7 billion annually on direct support for research and development. While applying for funding may be a good business practice, it’s hard to find the time and resources to do so, which is why, unfortunately, many manufacturers miss out on valuable opportunities. The good news is that for those companies that make the time to pursue funding opportunities, or who hire a third party who understands the process, there are a host of tax incentives, interest-free loans and grants available that reward innovation.
Grant programs are available from provinces and some local economic development agencies. There are also interest-free loans, such as the one offered in Québec by the Ministry of Economic Development and Export for the acquisition of equipment or for hiring people. Canadian manufacturers can also apply for incentives for environmental initiatives. Sustainable Development Technology Canada (SDTC) offers funding and incentive programs for companies investing in environmentally-friendly projects.
One particular tax credit is the Scientific Research and Experimental Development (SR&ED) program. Canada’s largest business incentive program, it distributes more than $4 billion per year in tax credits and cash refunds to companies performing work.
Who is eligible?
Companies can apply for SR&ED incentives that cover labour costs associated with the development of a project; overhead allocation; material; subcontractor costs; and capital.
Ross Cooper, senior advisor, Value Added Programs, for the Excellence in Manufacturing Consortium (EMC), says people often falsely assume that either they are eligible because they have an R&D department or, conversely, that they won’t be eligible for SR&ED because they don’t. “It goes much broader than that,” he says. “It’s about innovation, and where companies are doing things in an innovative way to remain viable and competitive in a fairly challenging environment.”
How to apply for SR&ED funding
Each tax credit, grant or interest-free loan has its own application procedure. SR&ED has four segments: new product, new process, related continuous improvement of a product or related continuous improvement of a process. Once you have identified which segment you fit into, the next step is to know the criteria. “The CRA looks at all three criteria, and if you don’t meet all of them you won’t be eligible,” Cooper says. Those three criteria are:
• Technological advancement. Did you learn something? You must demonstrate that, at the end of the project, your level of technical knowledge had increased.
• Technological uncertainty. You must also show that the knowledge you gained was not something you could just go out and find on the Internet. The CRA wants to know if there was a technical roadblock or a hurdle you had to overcome.
• Technical content. You must show, in detail, your development cycle. If it took you multiple times to get to the point you wanted, demonstrate the scientific approach you went through to learn what you learned.
Tips for making your application stand out
Having the right sort of company or project is your main strength, however, how you fill out the application is also critical to whether or not you receive money:
• Location, location, location: “How much you get varies from one province to another, so locate your activities where you can find good people and where you can get a good tax credit,” says Martin Vézina, partner, Global R&D and Government Incentives, National Leader, Incentives for Deloitte & Touche LLP.
• Get help. Consultants have the full-time task of helping manufacturers know which funding they would qualify for and how to increase their chances of getting it.
• Tell the truth. What you claim in your application must be accurate. SR&ED applications go through a series of reviews. Canada Revenue Agency can at any time request a formal technical and/or financial review of the company. “CRA is looking at these projects much more closely and folks are getting surprised,” Cooper says.
• Consider it a business proposal. The government’s goal is to help companies remain competitive and viable. “From a government’s standpoint,” Cooper says, “they want to know it’s a return for them by making that investment. By supporting that, you keep people employed and paying taxes. It really is their way of supporting industry and remaining competitive in a global environment.”
• Assign the task to a good writer. The wording you choose can make all the difference between qualifying and not qualifying. For example, Cooper says, “They don’t want to hear, ‘we took on this project because the product we’re producing meant we were losing our margin and had to remain competitive.’ But if you said, ‘Our customer is requiring this new product that we technologically did not know how to make, but we had to go through this development cycle to determine how to overcome that barrier, and here’s the scientific approach we used…’ they’ll be much more convinced that you’re innovative.”
• Document everything. For the SR&ED program, the CRA will look at things like revision levels within your drawing system, scribbles on napkins, notes in a logbook that say you did a trial on this day and that day and even emails. It’s also a good idea to take photos of your first trial and what you ended up with, and of the second, third and fourth trials. Support your claims with as much proof as possible.
Michelle Morra is a freelance writer from Toronto.
This article originally appeared in the September 2012 issue of Manufacturing AUTOMATION.