INNOVATION July-August 2017

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their access to the enhanced Investment Tax Credit rate. These exceptions, however, are atypical of most organizations. Government Assistance Governments also provide financial assistance for R&D. Funding can take one of two forms—either repayable assistance (loans) or non- repayable assistance (grants). Loans are a large, broad category with many exceptions that we cannot adequately cover here. Grants, on the other hand, tend to fall within five broad categories: Research and Development, Hiring and Training, Business Development, Capital Expenditures, and Green Initiatives. You might think that similar eligibility criteria apply to the R&D category of grants as apply to tax credits. However, the grants regime differs significantly from that of tax credits. Grants are generally forward-facing programs intended to support expenditures you anticipate making in the future. The length and extent of support varies, but most grants support activities within the next 12 to 18 months and fund up to 50 percent of eligible activities on a $1- to-$1 matching basis. Each grant is allotted a finite amount of funding each year, and if the cash runs out prior to the agency receiving your application, you will generally need to wait for the next intake. The reporting requirements are also fairly stringent: if your application is successful, you will be required to submit actual expenditures against a fixed amount of support that is pre-approved by the government.

Tax Credits vs Government Grants The primary differentiator between R&D grants and R&D tax credits is the timing of the affiliated R&D activities and its impact on the government’s motivation to extend support. Tax credits are detached from the success or failure of your development efforts and are oriented instead towards supporting the development of new technological knowledge in your organization. The activities have already occurred, the details of your eligibility are readily auditable, and the Canada Revenue Agency decides, after receiving your tax submission, whether or not to test the strength of your claim. Grants, on the other hand, are intimately tied to the success of your development efforts and are oriented towards the development of products and processes that will benefit the country and your local community. The activities have yet to occur, the funding agency assumes risk in regards to the direction and progress of your R&D, and support is contingent upon convincing the agency that there is merit and viability in your technology. Funding agencies, in fact, behave like any other risk-averse investors when considering your pitch for access to public grant money. The further down the development pipeline your technology has traveled, the more likely the public will see a return on their investment, and the easier it will be to convince funding agencies to provide you with support.

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