INNOVATION July-August 2017

f ea t u r e s

Making Strategic Research and Development Financing Work By understanding development and funding profiles, companies can focus efforts to gather support for R&D.

Darius Garcha, P.Eng., CPA, and Laslo Cesar

will likely need to retool your approach. The key to maximizing the amount and efficiency of government support is to target the right program at the right time. That, in turn, requires that you understand the strategy that animates how government provides research incentives. Below, we describe two of the main categories of federal government R&D funding in Canada—tax credits and government grants. We also demonstrate how they generally apply at different stages of R&D, and profile the most commonly experienced effects of both product development and company development on tax credits and grants. By comparing the typical development-process profile with the general financial-assistance profile, we believe organizations involved in R&D can more efficiently, effectively and strategically focus their efforts to gather R&D support. Tax Credits If you’ve engaged in research for some time or are proactive in investigating every avenue of available support, you probably have at least a passing familiarity with tax credits in general and with the Canadian government’s Scientific Research & Experimental Development (SR&ED) program in particular. The granddaddy of all research tax credit programs, SR&ED doled out more than $3 billion in investment tax credits in support of industrial research and development to 22,839 claimants in 2016, making it by far the largest and most popular research financing program in

Canadian decision-makers have heard the point made so often, it has become clichéd: an aging population and post-industrial economy are driving the requirement to raise productivity. That spells research and development. Yet with tepid economic growth, changing political dynamics, and uncertain trade relationships, corporate leaders have rarely been so risk averse. So how to reconcile these priorities? At least part of the answer could lie in recruiting government as a strategic partner in your activities. Subsidies and incentives aren’t new policies enacted by the different tiers of government, and the sheer scale of funding available is sufficient to pique the interest of most executives seeking respite from the challenges they face in research and development. Why, then, are so few companies taking full advantage of the opportunities? Broadly speaking, the business leaders we’ve interacted with have expressed their reticence either as exasperation with the complexity of navigating the tax credits, loans, and grants landscape and the manner in which these programs interact with one another, or as frustration with the poor returns they’ve received on the time invested in preparing applications. Analysis of the strategies companies employ in selecting programs suggests a common theme threading across most ineffective attempts to access government programs—a lack of alignment between the R&D cycle and government priorities. If your method thus far has merely been to match up a list of activities with funding alternatives and submit a surfeit of applications, you

18 J U LY/AU G U S T 2 017

i n n o v a t i o n