This is a guest post by Sam Jenkins, Managing Partner at Punchcard Systems. At Punchcard, we build digital platforms and products (like this one) that transform how people live and work. In this article, we’ve assembled an overview of innovation-oriented funding for organizations looking to adapt to the current landscape.
Throughout Canada, the COVID-19 pandemic is interrupting every single organization’s ability to deliver value to customers. While the effect of this on both our national and global economies is unprecedented, it is more important now than ever before for organizations to be investing in transformation and innovation.
In “normal” times, the team at Punchcard often looks at these funding sources as ways to extend our ability to build digital platforms that will impact the way people work. In this time of crisis, just like with the wage subsidy programs, it is essential that we find and invest in opportunities that will help our organizations be stronger in the weeks, months, and years of recovery that we have ahead of us.
What type of funding sources are available?
For an organization looking to invest in innovation, there are several types of funding: vouchers, grants, tax credits, and loans.
A voucher provides funding directly to a service provider on behalf of the applicant. A grant provides matching funding paid to the applicant. A tax credit is returned to the applicant upon submission of an organization’s corporate federal taxes. Unlike the previous three funding sources, a loan is repayable.
For Canadian organizations looking to invest in innovation during the crisis, the following list outlines some of the grant and support funding sources in the marketplace, and we have provided more details throughout this article:
Year-round Programs
| Program | Maximum Request Amount | Type |
| Alberta Innovates Micro Voucher | $10,000 | Voucher |
| Youth Employment Program | $10,000 | Grant |
| IRAP Small Technology Innovation Projects | $50,000 | Grant |
| Futurepreneur + BDC | $60,000 | Loan |
| Alberta Innovates Voucher | $100,000 | Voucher |
| IRAP Mid-sized Technology Innovation Projects | $250,000 | Grant |
| Scientific Research and Experimental Development | $2,000,000+ | Tax Credit |
| Ontario Development Funds | $5,000,000 | Grant & Loan |
| Sustainable Development Technology Canada | $3,000,000 | Grant |
| Strategic Innovation Fund (SIF) | $10,000,000 | Grant |
COVID-19-specific Programs
| Program | Maximum Request Amount | Type |
| Digital Technology Supercluster | Variable | Grant |
| NRC IRAP Innovation Assistance Program | To be announced | Grant |
Alberta Innovates Voucher Program
Alberta Innovates provides matching and non-repayable grants for entrepreneurs or small- and medium-sized businesses looking to build high growth technology products and platforms.
The purpose of these programs is to support the costs of service providers in the development of potential products.
What are these funds for?
These programs don’t apply to all opportunities, but are generally for:
- New product research and development;
- Design, engineering and prototype development;
- Product testing and refinement;
- Patent development (excluding patent maintenance fees);
- Advanced market assessment or segmentation analysis;
- Advanced business and/or marketing strategies; and/or,
- Other technology development activities that will be considered on a case-by-case basis.
Who is eligible?
To be eligible, an organization must be:
- A for-profit corporation, GP, LP, or LLP registered in Alberta
- Have fewer than 500 full-time employees
- Have less than $50m in annual gross revenue
- Have a physical presence (e.g. offices or operations) in the province of Alberta
- Be in good financial standing with Alberta Innovates
What programs funds are available?
There are two separate programs available to organizations, and generally are used sequentially:
| Micro-voucher Program | Voucher Program | |
| Contribution Limit | $10,000 | $100,000 |
| Applicant Contribution Minimum | 25% | 25% |
| Service Provider Limit | 1 service provider only | Up to 3 separate service providers |
| Completion Deadline | Within 12 months | Within 24 months |
What expenses can I apply these funds to?
Eligible expenses can include:
- Labour costs for individuals identified to be performing the service for the provider
- Materials, software or licensing, capital assets critical to the project.
Related links:
Futurepreneur & BDC
Futurepreneur, in partnership with Business Development Bank of Canada, provides collateral-free loans to entrepreneurs
Who is eligible?
To be eligible, the individuals owning more than 5% of the business must be:
- Between 18 – 39 years old
- Canadian citizens or permanent residents currently living in Canada
What programs are available?
| Maximum Loan Value | Interest Rate | Program Details | |
| Futurepreneur Canada Financing | $20,000 | CIBC’s prime rate + 3.75% | Interest-only payments for the first year.Principal repayments are made in equal monthly instalments together with interest, over the remaining four years. |
| BDC Financing | $40,000 | BDC Floating Base Rate + 5% | Interest-only repayment in the first year. |
Related links:
Futurepreneur Financing Options
Industrial Research Assistance Program (IRAP)
The National Research Council of Canada provides matching and non-repayable grants for businesses looking to build innovative, technology-driven products, services, or processes.
The Industrial Research Assistance Program, or IRAP, is managed by the National Research Council of Canada, and is the largest innovation assistance program targeted at small and medium-sized businesses.
What are these funds for?
The purpose of the fund is to help small and medium-sized businesses in Canada develop and commercialize technology-driven products and services. Effectively, the NRC is looking to invest in projects that will generate profits and employ a team while building a scalable product.
Who can apply?
For-profit businesses with:
- $1 million+ in annual revenue,
- Less than 500 employees, and
- Canadian operations.
What industries are of focus for IRAP?
ICT digital, manufacturing, agriculture & food, energy & resources, construction, health & life sciences.
What are the funding limits?
IRAP will cover up to 80% of internal labor and 75% of sub-contracted labour. The National Research Council will issue payments within 35 business days of receiving all required documents.
What expenses can I apply these funds to?
Eligible expenses can include:
- Up to 80% for salary or wage for employees involved in the project, and/or
- Up to 50% of contractor expenses dedicated to the project.
What program funds are available?
| Maximum Application Value | Program Purpose | |
| Small Technology Innovation Projects | $50,000 | Funding research and development and/or commercialization of technology projects |
| Mid-sized Technology Innovation Projects | $250,000 | Creating original software, developing new products, or engaged in other various internal R&D projects. |
| Innovation Assistance Program for COVID-19 | To be announced | Supporting organizations unable to secure funding under the Canada Emergency Wage Subsidy and the Business Credit Availability Program |
Related links:
Youth Employment Strategy Programs
The National Research Council of Canada provides matching and non-repayable grants for cover compensation for hiring young Canadians between the ages of 15-30.
What are these funds for?
To support small and medium-sized businesses in hiring young talent.
Who can apply?
For-profit businesses with:
- $1 million+ in annual revenue,
- Less than 500 employees, and
- Canadian operations.
The candidate that is being placed through this program must:
- Be full-time for a 6- to 12-month placement,
- Recent post-secondary graduate
- Being placed into a Scientific, Technology, Engineering or Mathematics (STEM) position
What expenses can I apply these funds to?
The program will cover 50% of the salary/wage of a candidate, up to a maximum of $10,000.
Related link:
Youth Employment Strategy at NRC-IRAP
Scientific Research & Experimental Development
The Scientific Research and Experimental Development (SR&ED) Program uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada.
These tax incentives come in three forms:
- an income tax deduction,
- an investment tax credit (ITC), and/or,
- a refund.
The definition of “scientific research and experimental development” given in subsection 248(1) of the Income Tax Act can be summarized as: “…systematic investigation or search carried out in a field of science or technology by means of experiment or analysis… to advance scientific knowledge or to achieve technological advancement.”
There are three criteria that are used when determining whether an activity is applicable:
- There must be technological uncertainty. This means that there must be no obvious solution to the technological problem that is being solved, either inside your organization or in the public domain.
- There must be systemic investigation. In the development of a piece of software, the experimentation through sprints and other agile processes help support the trial-and-error approach required for a systemic investigation.
- There must be technological advancement. The business value of the project is of no consequence when talking about advancement; the process must simply attempt to solve an uncertainty.
Examples of typically eligible activities include:
- New or improved product or process development
- New software constructs, architectures, or algorithms
- Improving performance, improving compression
- Solving scaling up issues
- Uncertainties associated with integration and 3rd-parties
- Integrating things that weren’t supposed to be integrated
- Design alternative resolved through recorded investigation, analysis, and/or proof of concept coding
- Uncertainties created by the target environment
- New features that challenge the original system architecture or system performance
- Development of software for in-house use with new constructs and/or new solutions to technological problems
Who can apply?
The application process occurs with the submission (or amendment) of your year-end tax documentation to the Canada Revenue Agency (CRA).
How do you prove scientific research to the CRA?
There are many types of proof for your claim, but it is important to show how your organization was using research, investigation, or discovery to advance science.
If you’re experimenting or prototyping, that’s SR&ED. If you’re trying different things to accomplish a task systematically, that’s SR&ED.
Your documentation should exemplify the technological uncertainties and the systematic investigation that was performed. In essence, the “how” and “why” of the development process is far more important to account for than the “what.”
How much can I apply for?
The amount of your SR&ED claim will be dependent on the amount of research that was performed, and the amount of technological uncertainty that was involved in the project.
Canadian private corporations can earn SR&ED tax credits for 35% of eligible expenses up to the first $2 million. Beyond the $2 million, companies can receive credits of 20% of expenditures.
Public companies, partnerships, and trusts can earn 20% of qualified expenditures for research and experimentation performed inside Canada.
What expenses are applicable?
The calculation related to expenses and SR&ED is relatively complex, but at a high level, tax credits provided via this program can include:
- Wages of personnel directly involved in SR&ED activities and related support staff,
- Consultants and service providers engaged in research and development
- Overhead and other expenditures incurred while performing research and development
- Cost of capital equipment purchased
It is recommended that you consult your CPA and finance professional when preparing your SR&ED activity.
Sustainable Development Technology Canada (SDTC)
The SDTC’s mandate is to fund projects that support Canadian small- and medium-sized enterprises (SMEs) advancing innovative technologies that are pre-commercial and have the potential to demonstrate significant and quantifiable environmental and economic benefits in one or more of the following areas: climate change, clean air, clean water and clean soil.
What types of projects are applicable?
To be eligible for funding, applicants must:
- Be a Canadian company developing a new and novel technology with significant and quantifiable environmental benefits that will provide a significant retained Canadian benefit following execution of the project.
- Have a defined project and be looking to demonstrate a pre-commercial technology.
- Have a strong end-user, value proposition and be able to validate the market and commercialization potential of the technology.
- Form a consortium that includes at least one other partner (recommended that applicants seek partners who are either end users or able to validate the need and market for the technology).
What program funds are available?
With this program, the average contribution is $3,000,000, representing 33 to 40% of eligible project costs.
What are the funding limits?
- 25% of the eligible costs must be funded through private sector contributions (including in-kind).
- Funding from all levels of government must not surpass 75% of eligible costs.
- At least 50% of eligible project costs must be incurred in Canada.
What types of funding requests are not considered by SDTC?
The following types of projects would not be accepted:
- Funding for research projects
- Project financing for deployment of commercialized technologies (e.g., solar/wind farms, greenhouse construction)
- The purchase of a proven technology from another jurisdiction for use in Canada
- Incremental modifications to existing technologies or processes (e.g., installation of an existing solar panel technology at an industrial site)
- One-off projects to reduce emissions at a specific site
- Projects that demonstrate economic benefits without environmental benefits
Related links:
Sustainable Development Technology Canada
Ontario Development Funds
The purpose of this fund is to support businesses with funding to encourage economic development in certain parts of Ontario.
Who can apply?
Businesses with:
- More than 10 full-time equivalent employees,
- Incorporated with 3 years of financial statements,
- A commitment to invest at least $500,000 over the next 4 years, and
- A commitment to create 5-10 new jobs over the next 4 years.
What expenses can I apply these funds to?
Organizations can apply these funds to:
- Salaries and wages
- Professional development and training
- Permits and fees
- Equipment and machinery upgrades
- Modifications to facilities
What programs funds are available?
These programs will provide loans of up to 15% of project costs, to a maximum of $5 million. These loans are provided interest-free for up to 4 years, and if the investment and job targets are achieved, up to 30% (to a maximum of $500,000) of the loan may be forgiven.
Related links:
Digital Technology Supercluster – COVID-19 Solutions
The Digital Technology Supercluster is leading the development of solutions to some of the biggest issues created by COVID-19. The COVID-19 Program is focused on unlocking solutions to protect the health and safety of all Canadians and our economy through the development, deployment, and scaling of digital technologies.
Through the COVID-19 Program, the Digital Technology Supercluster will invest up to $60 million to improving the health and safety of Canadians and Canada’s ability to address issues created by the COVID-19 outbreak, as well as building expertise and capacity to address and anticipate issues that may arise in future health crises.
Related links:
Digital Technology Supercluster – COVID-19 Solutions
If you have any questions about these programs, connect with your CPA, or if you’d like to explore ways to invest in innovation in your organization during the crisis using technology, contact the team at Punchcard Systems and we’d be happy to make introductions to our contacts at the above organizations.