SR&ED and Other Grants: How IRAP, Mitacs, and NSERC Affect Your Claim

Canadian startups often fund R&D through a mix of programs — SR&ED, IRAP, Mitacs, NSERC, provincial credits, and more. This can be a powerful combination, but founders are often surprised when CRA reduces their SR&ED claim because of other funding.

Here’s how the rules work, what to watch for, and how to plan your funding stack so you keep more of your credits.

1. The “assistance” rule

Under SR&ED, any government assistance you receive that is related to your eligible R&D must be deducted from your qualifying expenditures.

Government assistance includes:

• Federal programs like IRAP (Industrial Research Assistance Program)
• Research partnerships like Mitacs Accelerate
• Academic programs like NSERC Alliance
• Provincial wage subsidies and innovation grants

It does not matter if the assistance is given before, during, or after the work — if it’s tied to those costs, it reduces your SR&ED claim.

2. Government assistance vs. third-party payments

It’s important to distinguish:

• Government assistance = direct funding or subsidies from government programs.
• Third-party payments = when an external client pays you to do R&D, and they own the results.

Both can reduce your claim, but they’re treated differently in the T661 form. With third-party payments, you can only claim the eligible portion of costs you bear directly.

3. Repayable vs. non-repayable funding

• Non-repayable grants (e.g., most IRAP, Mitacs) are considered assistance and deducted from SR&ED-eligible costs.
• Repayable loans (e.g., some innovation financing) are generally not deducted unless they are forgiven.
• This can be a strategic choice — using repayable loans may preserve more SR&ED room than taking large non-repayable subsidies.

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4. IP ownership rules in grant programs

Even if a grant funds eligible work, you can only claim SR&ED if your company owns the results.

• Many academic programs (like NSERC) give universities IP ownership by default.
• If you want to claim, you need a formal agreement assigning IP (or co-ownership) to your company.

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5. Common programs and SR&ED impact

Program	Assistance?	IP Ownership Rules	Typical SR&ED Impact
IRAP	Yes	Company	Deduct amount from eligible salaries
Mitacs Accelerate	Yes	Depends on contract	Deduct amount; must have IP transfer if student on university payroll
NSERC Alliance	Yes	Often university	Deduct company-funded portion only; IP agreement critical
CanExport	No	N/A	No impact on SR&ED (marketing focus)
Provincial wage subsidies	Yes	Company	Deduct amount covered
NRC Industrial R&D Fellowships	Yes	Company or institution	Deduct amount if applied to SR&ED-eligible work

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6. How assistance affects your claim

• If a grant covers 100% of a specific cost, you cannot claim that cost under SR&ED.
• If it covers part of a cost, you claim only the remaining portion.
• Always link assistance to specific tasks or roles so you can deduct only the relevant amounts, not the entire project budget.

7. Combined funding stack example

Your startup spends $300,000 on eligible R&D salaries in a fiscal year.

• IRAP covers $90,000 of those salaries.
• Mitacs provides $20,000 for a graduate researcher on the project.
• A provincial wage subsidy covers $15,000 for a junior engineer.

Total deductions = $90,000 + $20,000 + $15,000 = $125,000.

Net SR&ED-eligible salary base = $300,000 – $125,000 = $175,000.

You still keep the $125,000 in grant funding, but your SR&ED is calculated on the reduced $175,000 base.

8. Strategies to maximize both grants and SR&ED

• Separate scopes: Assign certain tasks entirely to grant funding and others to SR&ED to minimize overlap.
• Track at the task level: Link every dollar of funding to the exact activity it supports.
• Negotiate IP rights: In academic collaborations, secure IP transfer or co-ownership.
• Use repayable loans strategically: They don’t reduce SR&ED unless forgiven.
• Document early: Keep funding agreements and technical records together for easy CRA review.

The takeaway

You can combine SR&ED with IRAP, Mitacs, NSERC, and other grants — but you must plan for the assistance offsets. Without clear tracking, you risk over-claiming and facing a reduction after CRA review.

SREDSimplify helps startups map their funding stack, track eligible costs accurately, and prepare a defensible SR&ED claim even in complex multi-grant scenarios.

Try our free pre-screener here: https://sredsimplify.com/

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