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The latest on the financing of innovation in Canada
Presented in partnership with:
Panel
• Michael Conway, President & CEO FEI Canada (Moderator)
• Sujeet Kini, Chief Accounting Officer, Open Text
• Peter McCusker, Innovation Funding Strategist, Alma CG
• Maria Negulescu, Vice President Operations, North America, Alma CG
26 Years
Experience
$13.4B In innovation funding over
the last 5 years
Global Revenue
$363M
500+ active clients in Canada
Funding of Innovation & Cost Consulting
Alma CG is a global leader in the funding of innovation
and operational cost consulting
> 1 300 employees around the world
> Operations in all OECD countries
> Global funding strategies since 1986
> Canadian presence since 1998
Government Funding of Innovation in Canada
Table of Contents
• Key numbers on Government Funding of Innovation
– Canada within the global landscape
• Where does it stand and how did it get to this point?
– Five year historical overview
• Where is it going?
– Looking forward
• What types of funding are available?
• How do you find them?
– Self-analysis for eligibility
• Conclusion – Next Steps?
Key Numbers
General Funding • > 4,000 programs
• > $25 Billion
• Federal and Provincial
• Loans, grants, tax credits, industrial/regional benefits for:
– Business Development – Capital Investments – HR & Training – Innovation – Etc.
Funding of Innovation • > 1,200 programs
• Federal > $7B to support R&D
• Provincial > $1.75B to support R&D
• Scientific Research & Experimental Development (SR&ED) Tax Credits:
– Federal > $3.6B – Provincial > $1B
Government Funding for Canadian businesses
Source: Booz & Company
Global Innovation Landscape • Total R&D expenditures by resident companies around the world
• Total R&D expenditures by resident and foreign companies in the country
• Total R&D expenditures by resident companies in their own country
$ Billions
Global Innovation Funding Landscape
Canada remains among the most generous jurisdictions in the world
for indirect funding of innovation yet trails in direct funding programs
• 2008 figures
• Federal funding only
Five Year Historical Overview 2
00
9
Landmark changes to
indirect funding
2009 Details
20
10
Jenkins Panel
On Government Funding of Innovation
More on Jenkins Panel
20
11
Jenkins Report
On Government Funding of Innovation
More on Jenkins Report
Main Recommendation…
1. Better administration of SR&ED
2. Less $ for indirect funding programs
3. More $ for direct funding programs
Five Year Historical Overview 2
01
2
Reduced tax credits for SR&ED
Chart
$1.1B in direct funding + $500M of VC
funding Details | Details
Revised “Policy on eligibility of work for SR&ED investment
tax credits” Details
20
13
Financial impact of 2012 on SR&ED
takes effect Charts QC ON BC Atl
> $500M in direct funding Details
Revised form for SR&ED claims
Effective Jan 1, 2014 Details
Were you aware of the changes to the SR&ED Application Policy (Dec 2012) and Claim Form (Oct 2013)?
1. Yes and Yes
2. No and No
3. Yes and No
4. No and Yes
Polling Question
Five Year Historical Overview 2
01
4
Financial impact of 2012 on SR&ED
takes effect Charts
$1.5B for new Canada First Research
Excellence Fund Details
> $725M in Direct Funding
Details Fr
om
20
09
to
20
14
Improved administration of
SR&ED
Less $ for indirect funding
More $ for
direct funding
Looking forward
SR&ED Tax Credit Program:
Still most generous program in the tax act for funding of R&D
Improved administration maintains credibility
Better balance between direct and indirect funding of Innovation
More direct funding opportunities
Business development, Capital Investments, HR & Training, Innovation, etc.
More Government programs to drive innovation and entrepreneurship, and support advanced research
Canada remains among the most generous jurisdictions in the world for indirect
funding of innovation and government is making efforts to invest more in direct
funding programs
Government Funding of Innovation
Indirect Funding
Tax Refund
Tax Reduction
Direct Funding
Funding
Repayable
Funding
Non Repayable
Funding
Both
Procurement Program
Indirect Funding of Innovation
Tax Refund
Tax Reduction
• Tax Refund: Refundable tax credits
• Tax Reduction: Non-refundable tax
credits
• Example: SR&ED Tax Credit
• TI < $500K = refundable
• TI > $800K = tax credit
• TI $500-800K = partially
refundable
• Entitlement based on meeting
eligibility criteria – some programs
require eligibility certificate prior to
claiming
Direct Funding of Innovation
Procurement Programs
Funding – Repayable
Funding – Non Repayable
Funding Both
Funding
• Repayable: loan guarantees, low
interest loans, interest-free loans
• Non repayable: grants
• Both: hybrid whereby repayment is
contingent on success of the
project – loan converts to grant if
project unsuccessful
• Application process:
• Meeting program criteria does not
guarantee funding
• Competing for fixed amount of
budget envelope
Direct Funding of Innovation
Procurement Programs
Funding – Repayable
Funding – Non Repayable
Funding Both
Government participates in
product development process
• Purchases product in pre-
commercialization phase
• IP must be protected
• TRL7-9 (Technical Readiness
Level): functional prototype in
operational environment, or better
• Calls for tender based on specific
categories of products (i.e.
environment, health, safety &
security, technologies)
Government Funding of Innovation
Indirect + Direct = More $$
Case Study: Quebec Manufacturer with $12K IRAP grant for project with McGill
IRAP only IRAP + SRED
Discussions with McGill 120h @ $30/h $3,600
Development of new system
Engineering: 360h @ $30/h (1 Tech + 2 Eng.) Tests & Mods: 400h @ $20/h (5 Tech.)
$18,800
SR&ED Incl. on expenses other than above labor $11,271
IRAP $12,000 Lowers SR&ED eligible expenses $12,000
TOTAL $12,000 $23,271
What has your experience been with direct funding?
1. Never applied
2. Applied, did not receive funding and don’t understand why
3. Applied, did not receive funding and understand why
4. Applied, received funding and actively looking for more
5. Applied, received funding and getting more than I can spend
Polling Question
Idea
Self-Analysis of Funding Opportunities
Discovery
Concept
Business Case
Engineering & Prototype
Testing & Validation
Plant Scale up
Product Launch
Commercialization
Step 1 Cross-reference your product
development/innovation
management system with direct
and indirect funding categories
Example of Product
Development/Innovation
Management System in the
manufacturing sector
Step 1 Cross-reference your product development/innovation management system with direct and indirect funding categories
Ide
a
Dis
cove
ry
Co
nce
pt
Bu
sin
ess
Cas
e
Engi
ne
erin
g &
P
roto
typ
e
Test
ing
& V
alid
atio
n
Pla
nt
Scal
e-U
p
Pro
du
ct L
aun
ch
Co
mm
erc
ializ
atio
n
Indirect Funding
SR&ED
Other Tax Credits
Direct Funding
Procurement
Funding – Repayable
Funding – Non Repayable
Self-Analysis of Funding Opportunities
Step 2: Indirect Funding Review your indirect funding strategy for compliance with the latest Application Policies and government expectations
SR&ED
o December 2012 Application Policy
o T661(13F) Claim Form Effective Jan 1, 2014
Other Tax Credits?
Self-Analysis of Funding Opportunities
Does your Business Plan include projects for?
Business Development
Capital Investments
HR & Training
Innovation
Step 3: Direct Funding Update your Business Plan and identify projects within the following categories:
Self-Analysis of Funding Opportunities
Are you spending money on these types of projects?
Business Development
Productivity programs including plant re-engineering, lean manufacturing, and improved management information systems (i.e. ERP, IT Systems, etc.)
Implementing digital computer technology
New market development; retaining and expanding existing markets and developing export marketing strategies
Development of export marketing strategies
Trade shows or foreign customer/dealer shows
Development of e-commerce enabled website
Upgrading of website
Self-Analysis of Funding Opportunities
Are you spending money on these types of projects?
Capital Investments Purchases of new or upgraded equipment and technology to
increase productivity
Capital costs including renovations or specialized equipment/furnishings necessary for the project
HR & Training Hiring and training new employees
Skill enhancements costs
Self-Analysis of Funding Opportunities
Are you spending money on these types of projects?
Innovation New products
Patent searches and/or filings
Research projects with Universities and/or Centers of Excellence
Consultants, project managers and sub-contractor fees
Consultant’s studies (i.e. planning and strategy, technology evaluation, feasibility study/assessments for new products, processes or markets)
Conclusion – Next Steps?
A sound Innovation Strategy includes both Direct and Indirect Funding
1. Programs are in constant evolution
2. SR&ED remains the most generous program in the tax act for indirect funding of R&D however strategies must be adapted to the latest changes to avoid unnecessary risks.
3. Update your business plan and appoint resources – either internal or external – to identify, plan for and track sources of direct funding.
The money is there… don’t leave it on the table.
Global leader in the funding of innovation
and operational cost consulting
• Full service innovation funding strategies
• Full service claim management
• Innovation funding consulting
• Training, Peer Reviews, Audit Support
Peter McCusker [email protected]
T 1-866-931-0166 x138
Maria Negulescu [email protected]
T 1-905-760-7858 x507
Thank you!
Details and Charts
Five Year Historical Overview 2
00
9
Improvements to admin of SR&ED:
50% of Federal indirect funding for R&D per year.
Revised T661 form: 1,400 words to establish eligibility of project.
25% more auditors added
Back 2
01
0
Jenkins Panel:
Appointment of independent expert panel to review Federal programs that support R&D and provide recommendations on how to maximize the benefit from the $7B spend. Back
Five Year Historical Overview 2
01
1 Jenkins Report – Main Recommendations:
1. Create Industrial Research and Innovation Council;
2. Redirect $ from SR&ED to direct funding programs;
3. Federal government should be early adopter of innovative Canadian technologies;
4. NRC should be divided into centers of excellence linked to universities and industry;
5. BDC should become an active early-stage investor in Canadian technology businesses and collaborate with angel investors from the private sector; and
6. Federal government should develop closer links with the provinces to align science and technology policies. Back
Five Year Historical Overview Fe
der
al B
ud
get 2
01
2
On Creating Value-Added Jobs Through Innovation: The Government is committed to a new approach to supporting innovation that focuses resources on private sector needs.
On Support for Research, Education and Training: The Government is committed to providing additional resources to support advanced research at universities and other leading research institutions.
On Creating Value-Added Jobs Through Innovation: The Government is committed to a new approach to supporting innovation in Canada. Economic Action Plan 2012 announces $1.1 billion over five years to directly support research and development and $500 million for venture capital. Back
Impact of 2012 Budget on SR&ED
Pre-2013 Jan 1, 2013 Jan 1, 2014
Enhanced tax credit rate for
small CCPC TI < 800K & up to 3M$ of expenditure
35% 35% 35%
Basic Tax Credit rate for
other entities 20% 20% 15%
Capital Expenditure Equip purchased or leased for SR&ED eligible eligible non eligible
Proxy rate for overhead 65% 60% 55%
Arm’s length sub-contractor 100% 80% 80%
Back
Impact of 2012 Federal Budget on SR&ED
Federal and Provincial combined recovery rates
Back
Pre-2013 Jan 1, 2013 Jan 1, 2014
Quebec
Salary Expenditures 47.0-82.1% 46.0-80.4% 38.1-78.6%
Consumed Material 20.0-35.0% 20.0-35.0% 15.0-35.0%
Sub-Contractors 27.0-47.0% 23.0-40.2% 19.4-40.2%
Capital Expenditures 20.0-35% 20.0-35% 0.0%
Ontario
Salary Expenditures 38.9-72.8% 37.8-70.6% 29.2-68.4%
Consumed Material 23.6-44.1% 23.6-44.1% 18.8-44.1%
Sub-Contractors 23.6-44.1% 18.9-35.3% 15.1-35.3%
Capital Expenditures 23.6-40.4% 23.6-40.4% 0.0%
Impact of 2012 Federal Budget on SR&ED
Pre-2013 Jan 1, 2013 Jan 1, 2014
BC
Salary Expenditures 46.2-68.5% 44.8-66.4% 36.4-64.3%
Consumed Material 28.0-41.5% 28.0-41.5% 23.5-41.5%
Sub-Contractors 28.0-41.5% 22.4-33.2% 23.5-33.2%
Capital Expenditures 28.0-41.5% 28.0-41.5% 0.0%
Atlantic
Salary Expenditures 52.8-73.8% 51.2-71.6% 43.0-69.4%
Consumed Material 32.0-44.8% 32.0-44.8% 27.8-44.8%
Sub-Contractors 32.0-44.8% 25.6-35.8% 22.2-35.8%
Capital Expenditures 32.0-44.8% 32.0-44.8% 0.0%
Federal and Provincial combined recovery rates
Back
Five Year Historical Overview Fe
der
al B
ud
get 2
01
2
Budget Highlights – Direct Funding:
• $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
• $100 million to the Business Development Bank of Canada to support its venture capital activities.
• $110 million per year to the National Research Council to double support to companies through the Industrial Research Assistance Program (IRAP).
• $14 million over two years to double the Industrial Research and Development Internship program.
Back
Five Year Historical Overview Fe
der
al B
ud
get 2
01
2
Budget Highlights – Direct Funding:
• $12 million per year to make the Business-Led Networks of Centres of Excellence program permanent.
• $105 million over two years to support forestry innovation and market development.
• $95 million over three years, starting in 2013–14, and $40 million per year thereafter to make the Canadian Innovation Commercialization Program permanent and to add a military procurement component.
• $67 million in 2012–13 as the National Research Council refocuses on business-led, industry-relevant research.
Back
Five Year Historical Overview D
ecem
ber
20
12
Revised policy on eligibility of work for SR&ED tax credits
1) Was there a scientific or technological uncertainty – an uncertainty that could not be removed by standard practice?
2) Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
3) Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypotheses?
4) Did the process result in a scientific or technological advancement?
5) Was a record of the hypotheses tested and the results kept as the work progressed?
More clear emphasis on scientific or technological uncertainties, the scientific method, and documentation Back
Five Year Historical Overview Fe
der
al B
ud
get 2
01
3
Federal Budget Highlights: Financial impact of 2012 budget takes effect
$15 million over two years: resources to review of SR&ED claims
$5 million over two years to the CRA to conduct more direct outreach activities with first-time SR&ED program claimants
$121 million over two years to the National Research Council (NRC) to help the growth of innovative businesses in Canada;
$37 million per year through granting councils, in support of research partnerships with industry to create and deploy new technologies, products and services into the marketplace
$325 million over eight years to Sustainable Development Technology Canada (SDTC) in support of the development of new clean technologies, and drive innovation;
Back
Five Year Historical Overview O
cto
ber
20
13
Revised Claim Form for SR&ED (T661-13F) Effective January 1st 2014, regardless of fiscal year-end.
New five point description of the project to present eligibility.
The order of the questions changed to reflect the way SR&ED is defined in the “Eligibility of Work for SR&ED Investment Tax Credits Policy” from December 2012.
Scientific research (pure or applied research projects) and experimental development projects are now treated equally.
Back
Five Year Historical Overview Fe
der
al B
ud
get 2
01
4
Federal Budget Highlights:
Financial impact of 2012 budget takes effect
New Canada First Research Excellence Fund $1.5 billion in funding over the next decade to help Canadian post-secondary institutions excel globally in research areas that create long-term economic advantages for Canada.
• $50 million in 2015–2016
• $100 million in 2016–2017
• $150 million in 2017– 2018
• $200 million annually by 2018-2019 and beyond
Five Year Historical Overview Fe
der
al B
ud
get 2
01
4
Federal Budget Highlights:
$8 million over two years to Mitacs to expand its support for industrial research and training of postdoctoral fellows.
$10 million over two years in support of social innovation research projects at colleges and polytechnics.
$222 million over five years, starting in 2015–16, to the TRIUMF physics laboratory to support the facility’s world-leading research and international partnership activities.
$3 million over three years to the Canadian Digital Media Network for the creation of the Open Data Institute, through the Federal Economic Development Agency for Southern Ontario.
Five Year Historical Overview Fe
der
al B
ud
get 2
01
4
Federal Budget Highlights:
New funding of $46 million per year for the granting councils to support advanced research and scientific discoveries, including the indirect costs of research.
Providing an additional $500 million over two years to the Automotive Innovation Fund, to support significant new strategic research and development projects and long-term investments in the Canadian automotive sector.