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With IRAP under the CIC, will government finally move at the speed of business?

With IRAP under the CIC, will government finally move at the <em data-lazy-src=
on March 24, 2023
With IRAP under the CIC, will government finally move at the speed of business?

Does Canada have an innovation problem?

While The Great White North can proudly tout having some of the best universities in the world, and ranks second globally when it comes to PISA scores, this brainpower is failing to make its way into the private sector—at least beyond the country’s startup community, which regularly ranks among the most vibrant in the world.

While this stance is certainly debatable, that’s the position taken by the architects of the Canadian Innovation Corporation (CIC).

This is the much-anticipated new Crown agency that will eventually absorb the National Research Council’s (NRC’s) Industrial Research Assistance Program (IRAP). As we recently discussed, the program follows the lead of governments the world over who have used federal funding to accelerate innovation within their local economies. 

According to those behind the latest blueprints from the CIC—including Dan Breznitz, co-director of the Innovation Policy Lab at the University of Toronto and one of the CIC’s “main architects”—there’s little incentive for businesses within Canada’s private sector today to seek out innovation in the current market. 

In a recent interview with Betakit, Breznitz explained that while the Canadian government has been generous with funding education over the past three decades, investment in the private sector aimed at bringing new Canadian ideas to market (read: delivering productionalized innovation) has been more-or-less stymied since the North American Free Trade Agreement (NAFTA) was established in the mid 90s—at least outside of the startup realm. 

While there’s a lot of debate to be had about how “friendly” the Canadian government is toward innovation compared to its peer nations, there’s data to backup Breznitz’s point.

According to the Global Innovation Index, Canada currently ranks 15th in the world, well behind the U.S. (#2) and the United Kingdom (#4). And despite Canada ranking first on measures of joint venture and strategic alliances per billion dollars of GDP, these figures really just indicate that investments into new Canadian innovations are by and large coming from outside the country. In kind, the fruits of those innovations (wages, taxable income) aren’t staying in Canada either. 

The logic behind IRAP under CIC

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 the key factor here, according to Breznitz and others, as the inability for innovative companies to not only qualify but receive government funding when they need it most is one of the most frustrating conditions Canadian entrepreneurs face today (more on how Boast can help here later…). By taking a fresh start, more or less, in creating the CIC 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. 

The challenge here—and cause of additional frustration for founders watching along—has been the open-question of what this infrastructure will eventually look like.

How can the government move at the speed of business?

As anyone who has experience in both government and the private sector will attest, nothing moves quickly in government. And breaking almost three decades of bad business habits in Ottawa can’t be done on a 12-week timeline, ala finalizing a product roadmap for investors. 

When the idea of a new Crown corporation targeting innovation was first floated back in 2021, the default model that many in the Canadian private sector anticipated was the Defense Advanced Research Projects Agency (DARPA) in the U.S. In fact, “CARPA” became something of a campaign slogan for those in favor of a new innovation agency, and with the U.S. ranking first in terms of global innovation, what better model to follow. 

But where DARPA has succeeded is not in deriving innovation at speed. Take the mRNA research conducted ahead of the COVID-19 vaccines from Pfizer and Moderna; while DARPA backed a lot of the studies into mRNA vaccines, these investments took place over the course of decades.

To that end, mRNA research and development was done under the banner of “Defense,” which is ultimately the motivating factor driving the U.S. government to spend so much money through the DARPA program: To ensure the nation’s competitive advantage on the battlefield. 

This strikes at a fundamentally different problem than what’s been defined for Canada in the runup to the CIC’s creation. The problem isn’t a matter of battlefield defensiveness, but a lack of incentives for Canadian businesses to bring the many great ideas being born in Canada into a profitable, exportable reality. 

Keeping Canadian ideas—and prosperity—in Canada

It’s not that the CIC is aiming to shield the rest of the world from the great ideas coming from the nation’s citizenry. In fact, creating an “exportable product” is at the heart of all of this. The real goal is to ensure that once these ideas make it to the innovation and productionalization phase, Canadians can still enjoy the associated prosperity. 

How exactly this will be incentivized, however, is still yet to be finalized—which is sort of the point. By creating an organization that doesn’t rely on existing systems and that can actually embrace trial and error is key; it just means there’s still a lot of uncertainty (including around who will lead the CIC) in the leadup to the end-of-year go-live date the government set for itself back in February

CIC and IRAP may include penalties

Breznitz did share some details in his interview about the introduction of penalties, which hadn’t been detailed in the February news release announcing the CIC and IRAP-absorption. While, like almost everything about the CIC, the finer points still need to be defined, Breznitz explained that in almost every nation where a similar innovation program has been instituted, penalties have been established for companies who eventually take their business—and taxable income—outside of Canada. 

It’s too early to speculate what exactly these penalties will look like, but Bretnitz emphasized that they need to be designed in a way that encourages businesses to look at the long haul when taking advantage of IRAP. This means discouraging founders who want to cash out quickly after taking advantage of government funding, or those who may have their eyes on foreign investments (and a quick cash-out) from the start. 

There are bound to be more details in the weeks and months ahead as the infrastructure for the CIC and the future of IRAP comes into clearer view. 

In the meantime…

For now, however, innovative businesses that are already engaging in R&D and contributing to Canada’s prosperity can tap into available tax credits—if not grants outright—leveraging QuickFund from Boast.

With Quickfund, founders can estimate the value of their year-end SR&ED tax credit actively throughout the year, and gain early access to the majority of this capital whenever they need it. This offers founders a non-dilutive funding option that can extend their runway when times are tough, or help them double down on innovation and reinvest in critical R&D. 

Boast AI takes a white glove approach to our partnership with innovative founders to help ensure they are reaping all the possible federal funding and credits they qualify for without exhausting their resources.

To learn more about what the CIC Blueprint implies for Canadian businesses and how teams can start working to maximize their returns, check out our #InnovatorsLive conversation with VP of Customer Delivery Matt Funk.

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