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Canada delays CIC, IRAP restructuring until 2026-2027

Canada delays CIC, IRAP restructuring until 2026-2027
on January 5, 2024
Canada delays CIC, IRAP restructuring until 2026-2027

The long-hyped Canadian Innovation Corporation (CIC), which was originally pitched as a campaign promise back in 2021 and was even included in this year’s Budget Implementation Act, will not be fully implemented until at least 2026, according to federal government statements

The CIC was originally dreamed up as a Canadian answer to the United State’s Defense Advanced Research Projects Agency (DARPA), offering innovation funding through government-backed defense initiatives. The program was then repackaged as a Crown corporation as part of Budget 2022, posturing the CIC as a government-backed innovation investment agency. 

The next phase of the CIC’s evolution came in February 2023, when it was proposed that the new Crown corporation would absorb existing programs—namely, the Industrial Research Assistance Program (IRAP)—to create a “large-scale platform of business R&D support” under a single government umbrella.

In doing so, the CIC would enjoy a nearly $2.6 billion budget over four years, which more than doubles what was originally allocated in Budget 2022. This strategy would have taken IRAP away from National Research Council (NRC) oversight for the first time in the program’s 70-year history. 

Now, this transition won’t take place until after the next federal elections, pushing implementation to 2026-2027 at the earliest. 

Part-in-parcel with this announcement was news that the government would begin exploring a “cost-neutral modernization” of the country’s banner Scientific Research and Experimental Development (SR&ED) tax incentive program. Starting this month (January 2024), federal leadership have committed to conducting consultations that “will focus on how to better target SR&ED […] positions the country as an R&D leader.”

While details are light on how this will pan out for SR&ED, the broader announcement—including the delayed CIC launch—indicates that the government is hoping to buy more time to better organize and optimize its mechanism for driving homegrown innovation.

Better organization while still delivering support

While many stakeholders have expressed frustration at the delay in formally launching the CIC, the government calls the push necessary so that the IRAP program “can seamlessly provide its essential support to the thousands of small and medium-sized enterprises it works with each year.”

The statement also indicates that there’s additional due diligence to be conducted in speaking with stakeholders across the Canadian economy, “from leading Canadian investors, including pension funds, about the launch of the CIC.”

And despite funding for the CIC having already been passed in this year’s Budget Implementation Act, there has yet to be a formal CEO assigned to lead the Crown agency, even though qualifications for the job have been more-or-less defined since last March. While no official statements have been made, the inability to find a CEO willing to lead the agency before upcoming elections may be another key factor in the CIC’s delay. 

Why build the CIC in the first place?

While funding R&D projects is a key component of the CIC, the program takes cues from successful innovation programs established elsewhere (ie. Israel, Finland) to offer businesses access to education, advisory programs, and a network of innovative peers. The aim, ultimately, is to create an “outcome-driven organization,” giving a much-needed boost to Canadian R&D following a two-decade decrease in R&D investment compared to global peers. 

According to the Global Innovation Index, Canada currently ranks 15th in the world, well behind the U.S. (#2) and the United Kingdom (#4), despite Canada ranking first on measures of joint venture and strategic alliances per billion dollars of GDP. 

What these “venture” and “strategic alliance” figures indicate is that investments into new Canadian innovations are by and large coming from outside the country—and the fruits of those innovations (wages, taxable income) are often going offshore. 

Why separate IRAP from the NRC?

By moving IRAP under a new Crown agency, the Canadian government is hoping to accomplish a few different objectives at once. 

For starters, by pulling innovation funding like IRAP under the CIC umbrella, the government hopes to eventually scale back the sheer number of programs that private businesses need to navigate to receive government funding (180 at current count) into a much more streamlined organization. This means broadening the scope of some programs, removing others altogether, and building a process for approvals and evaluation that can move at the speed of business. 

“Speed” is key in this sense, as the inability for innovative companies to not only qualify but to actually receive government funding when they need it most is one of the most frustrating conditions Canadian innovators are up against today. By creating the CIC as a new Crown agency from the ground up, considerations of speed can be baked into the infrastructure of the agency as the CIC’s pillars begin to take shape. 

Any implications for companies claiming IRAP, SR&ED today?

Aside from new administrative oversight, startups that take advantage of IRAP shouldn’t be concerned about their funding drying up, while strategies that balance IRAP funding with SR&ED tax credits will remain a pivotal tool for innovative businesses for at least the short term.

Today, many Boast customers take advantage of both IRAP and SR&ED programs for government grants and tax credits, respectively. The main difference between the two programs is that IRAP is project-based and involves applying for grant money either before or at the onset of R&D. As such, teams taking advantage of IRAP need to work with individuals within the government (ITA) to present their project proposal for approval before they receive funding, which is allocated throughout the year.

SR&ED, on the other hand, allows qualifying founders to receive a cash refund or tax credit when filing corporate taxes at the end of the fiscal year.

Boast customers that qualify for SR&ED can actually make their R&D dollars go further, tapping into a portion of their SR&ED claim over the course of the year—not just when the books close every 12 months. 

By syncing key financial, workflow and payroll data into the Boast platform, our team can actively track for SR&ED-eligible activities and map your EOY tax credit claim as your team conducts R&D. With our QuickFund program, customers can tap into a portion of their anticipated SR&ED credits on a quarterly basis, giving them capital to reinvest into their product roadmap, and potentially even unlocking more SR&ED-eligible activities (and therefore cash back) in the process. 

Learn more about how you can pre-qualify to tap into your advanced SR&ED refund by working with Boast to maximize your claims.

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