IRAP Funding for Your Business – Taxes, Timeline and Requirements

IRAP stands for Industrial Research Assistance Program. It is a Canadian federal government program in support of business innovation, which provides funding and coaching to thousands of projects every year. IRAP is run by the National Research Council of Canada (NRC). IRAP also provides employment grants.

As with many government funded programs, it is important for founders to understand the requirements, costs and benefits of working with IRAP before starting an application.

Types and scale of IRAP funding

IRAP offers two types of funding: projects and employment. Employment grants typically contribute to the salary of a new hire for a few months and cap out at about $10,000 per employee. Project grants can cover salaries for new/existing employees, and expenses towards a defined R&D project. Project grants can vary in size, but startups should expect projects in the $25k to $50k to be workable. IRAP has recently been funding commercialization projects involving innovation in marketing and sales, but these funds are scarce and it is exceedingly rare to receive them.

IRAP funding requirements – when to apply

You can get a detailed understanding of the IRAP funding requirements on the NRC website, but it can be a lot of information all at once, so we’ll try to lay out the basics here. For IRAP projects grants the requirements are roughly as follows:

IRAP Maturity Requirements

Your company needs to be more than 1 year old and should be earning revenue. IRAP typically does not support the first iteration of a product. If you have customers, have established product-market fit and need to come up with the next iteration to expand, that’s where IRAP comes in.

IRAP Accounting Requirements

Your accounting records need to be up to date and you must have sufficient accounting systems. You’ll be asked for NTR financial statements up to date, and interim financials for the months after your latest year end. Additionally, you’ll need to have systems in place to record time and expenses to the project – while this is not a strict requirement for an application, you’ll be unable to submit your project reports and claims if you don’t.

IRAP Innovation Requirements

Your project needs to be innovative in some way. The IRAP funding requirements aren’t quite as strict as the SRED requirements, but it certainly must be a departure from ‘business as usual’. Are you attempting to solve a problem and you’re not certain you’ll succeed? Would you be able to solve it without IRAP support?

IRAP Project Outcome Requirements

The project needs to lead to some definite business outcome. You must be able to demonstrate that if the project is successful, it will lead to increased revenue/profits, job creation, etc.

IRAP Application Timing

Additionally, it must be noted that the fund is competitive. IRAP has limited funds each year and they will allocate their funds to the projects they feel are most likely to be successful. So you’ll be more likely to succeed if you establish a relationship with an ITA (an Industrial Technology Advisor – basically an IRAP representative who evaluates companies, gives advice and decides on funding) – long before you need funding. Pitch them with project ideas, keep them posted on your progress.

IRAP funding is always open, but if you approach them late in the federal funding year, you’ll likely find that their funds have already been allocated. Timing is important.

Finally, it should be noted that IRAP often has separate funds for employment grants and the IRAP funding requirements for employment grants are much looser. It’s a good idea to take up an employment grant first, as you establish your relationship with IRAP.

IRAP funding criteria – what can be included?

After you pitch your ITA and you come to a mutual understanding of your project definition, they’ll ask you to prepare an application. As part of your application, you’ll need to tally up the total project budget and demark IRAP’s contribution vs. yours.

• IRAP will fund 80% of Canadian employee salaries and wages.
• IRAP will fund 50% of expenses paid for materials and contractors, noting that it is unlikely they’ll fund non-Canadian contractors.
• IRAP will fund a portion of overhead associated with a project, including management salaries. Note though that these need to be hard numbers.

Assuming your project is approved, you’ll need to track and claim these expenses, so make sure you have time tracking and project accounting capabilities. Talk to your accountant if you’re not sure how.

Is IRAP funding taxable?

Yes, IRAP funding is taxable. You didn’t think the CRA would let you have those funds for free, did you? Talk to your accountant about how to record IRAP funding – it can be recorded on your income statement as ‘other income’ or in an expense contra-account. Either way it increases your Net Income (or reduces your loss) and therefore affects your income tax calculation. Talk to a corporate tax accountant for more help.

IRAP Funding Timeline

The timeline for IRAP funding isn’t slow, but it isn’t exactly fast either. A typical project might be 6 months long, and you’ll receive funds depending on the reports and expenses you actually submit, but capped by the budgeted amount.

• -6 months: As noted above, it can take months to develop a relationship with an ITA, so start long before you need funding.
• -1 month: Plan to spend a few weeks talking to your ITA and getting your application ready (don’t worry, they’ll help)
• -1 week: Your ITA will take your application to their colleagues for approval. They normally respond pretty quickly.
• Approval: You’ll get a notification that your project has been approved, along with logins for their project reporting system and other administrative forms to fill.
• +1 month: You’ll have your first project review meeting with your ITA and you’ll submit your report and time/expenses.
• +2-3 months: by this time you should have funds in your account for whatever you claimed in your first report. You’ll be submitting your next report and expenses as well.
• +x months: continue filing reports through to the end of the project
• Completion: the IRAP funding timeline finishes after your last project report. You’ll have a summary meeting and final report to submit.

Conclusion

IRAP is a great funding partner but startup founders need to be aware that the funds are limited/competitive, the projects are small and the funds don’t arrive in your bank all at once. There is an administrative burden to applying and reporting that turns many founders off. But, very importantly, working with IRAP forces you to identify a strategic project, forces you to define the criteria for success, forces you to develop the internal structures and accounting systems for reporting progress, and forces you to manage spend to a budget. These disciplines are crucial for success in any startup. If you’re considering IRAP funding for your business, prepare by speaking with our accountants in Vancouver or accountants in Toronto. If you are considering funding your expansion via multiple sources of dilutive and non-dilutive capital, please speak to a fractional CFO.