R&D is expensive. Every day, world-class research projects launched by small companies and entrepreneurs get swamped with budget costs that kill their momentum. If you don’t manage the R&D costs from day 1, your research will get bogged down in how to afford your staff, where to procure equipment, and how to keep the lights on.
Fortunately, innovation is seen as critical to sustaining the Canadian economy, and there are many ways to manage R&D costs. Let’s learn how to manage R&D costs effectively.
Apply for SR&ED Tax Incentives
The largest R&D incentive in Canada is the SR&ED, otherwise referred to as the Scientific Research and Experimental Development tax credit program. The SRED grant allows Canadian companies, on the first $3 million they earn in qualifying expenditures, to earn an investment tax credit of 35%.
This will cover salaries, capital expenditures, consulting fees, and materials, among other things. For amounts above $3 million, receive an additional 15% tax credit. Most companies claim these in a cash refund, which helps offset overall R&D costs.
Apply for Provincial Tax Credits
Almost every province in Canada has some form of provincial tax credit for qualified SR&ED expenditures. This is above what you would already qualify for from the federal program. The exception is PEI, Nunavut, and the Northwest Territories. Everywhere else has some kind of program for R&D costs.
Ontario, for example, has the innovation tax credit (OITC), business-research institute tax credit (OBRITC), a research and development tax credit (ORDTC), and the transitional tax debits and credits.
What Province Has the Best R&D Programs?
Legislation is always changing. The official provincial R&D tax credit is easy to compare. Ontario has the lowest non-refundable tax credit of 3.5% for eligible expenditures compared with Quebec, with the highest at an astounding 30%.
Several programs in every province can beneficially manage R&D costs directly and indirectly. A small business that can choose where they do their R&D has a lot of compare-and-contrast to decide what fits them best.
Apply for NSERC Engage Grant (Short-Term R&D)
The Natural Sciences and Engineering Research Council, or NSERC, has several programs that partner with small businesses and post-secondary institutions to help facilitate collaboration on important research projects.
Engage grants to support research projects undertaken by eligible university and college professors, alongside their industrial or commercial partners. A maximum grant of $25,000 is provided over six months, supporting costs relating to the project.
Apply for Applied Research and Development Grants
The NSERC Applied Research and Development grants allow you to collaborate with a post-secondary institution and conduct an R&D program for up to three years. A successful applicant’s funding can potentially cover up to half their project costs. The benefits of doing R&D with post-secondary partners are clear:
- Gain access to expertise and capabilities available through colleges and universities.
- Students are trained in essential technical skills, minimizing labour costs and tapping into other post-secondary resource.
Apply for Collaborative Research and Development Grants
Another NSERC program is the Collaborative Research and Development program which is designed for long-term R&D. For projects up to five years in duration, and they can be awarded a six-figure amount annually to help cover eligible expenditures.
This also relies on collaboration with a college or university and providing an enhanced learning environment for students and post-secondary partners. Understandably, not every company will want that, nor is every R&D project appropriate for the program.
Industry-Specific R&D Tax Credits and Tax Incentives
Different industries have different tax incentives available to them. For example, suppose your R&D project is in healthcare. In that case, you may want to apply to the CIHR’s Industry-Partnered Collaborative Research Program, which rewards up to $250,000 per year for up to five years as a grant in exchange for collaboration with certain research institutions.
Avoid Excessive R&D Spending
In conjunction with the opportunities we mention, it’s important to be strict with your R&D cost controls. Excessive spending leads to risk and unnecessary financial burden, on top of the risk of too much innovation, which is itself a problem as it can be difficult to translate that into large production.
Always have a reason to spend. Lower levels of R&D spending can be more advantageous and will protect your company better. Being smart about spending is the best rule in managing an R&D budget.
Hire Graduate Students Under Funded Programs and Incentives
Highly qualified personnel come with a cost. A way to get around this, somewhat, is using the Mitacs program. Mitacs has multiple programs that will essentially pay you to hire students. The Mitacs Accelerate Program will offer $7,500 to hire a graduate student or post-graduate fellow for a four-month internship.
The Accelerate Cluster program also provides a $44,000 grant in exchange for hiring a minimum of six interns to address a research goal in cooperation with your small business.
