The latest on the financing of innovation in Canada Webinar Alma CG-FINAL3.pdfGlobal Revenue $363M 500+ active clients in Canada Funding of Innovation & Cost Consulting Alma CG is

The latest on the financing of innovation in Canada

Presented in partnership with:

Panel

• Michael Conway, President & CEO FEI Canada (Moderator)

• Sujeet Kini, Vice President and Controller, Open Text

• Peter McCusker, Innovation Funding Strategist, Alma CG

• Maria Negulescu, Vice President Operations, North America, Alma CG

This presentation is the exclusive property of Alma CG. All rights reserved 2014. 2

26Years

Experience

$13.4BIn 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

• Global reach spanning 16 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 funding opportunities

• 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


Global Innovation Funding Landscape

Canada has historically been among the most generous jurisdictions

in the world for indirect funding of innovation yet trails in direct funding programs

• 2008 figures

• Federal funding only

Source: OECD Science, Technology and Industry Scoreboard 2013 - © OECD 2008 7

Five Year Historical Overview2

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



01

2 Reduced tax credits for SR&ED

Chart

$1.1B in direct funding + $500M of VC

fundingDetails | Details

Revised “Policy on eligibility of work for SR&ED investment

tax credits”Details

20

13 Financial impact of

2012 on SR&EDtakes effect

Charts QC ON BC Atl

> $500M in direct fundingDetails

Revised form for SR&ED claims

Effective Jan 1, 2014Details


Polling Question


Were you aware of the changes to the SR&ED Application Policy (Dec 2012) and Claim Form (Oct 2013)?

Yes and Yes

37.2%

No and No

34.9%

Yes and No

25.6%

No and Yes

2.3%


01

4 Financial impact of 2012 on SR&ED

takes effectCharts

$1.5B for new Canada First Research

Excellence FundDetails

> $725M in Direct Funding

DetailsFr

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


Global Innovation Funding LandscapeCanada remains among the most generous jurisdictions in the world

for indirect funding of innovation and is improving in direct funding programs

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Indirect government supportthrough R&D tax incentives

Direct government funding ofBERD

• 2011 figures

• Federal funding only

Source: OECD Science, Technology and Industry Scoreboard 2013 - © OECD 2013 13

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 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

Development of new system:Engineering: 360h @ $30/h (1 Tech + 2 Eng.)Tests & Mods: 400h @ $20/h (5 Tech.)

SR&ED tax credits after expense adjustment $11,271

$12,000 $12,000

TOTAL $12,000 $23,271

Programs can be combined Deduct grants from expenses when calculating tax credits


Polling Question


What has your experience been with direct funding?

Never applied

63.9%

Applied, did not receive funding and don't understand why

1.4%

Applied, did not receive funding and understand why

6.9%

Applied, received funding and actively looking for more

26.4%

Applied, received funding and getting more than I can spend

1.4%

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=hesD8vy4V9kseM&tbnid=Bf_GG38uILWdfM:&ved=0CAUQjRw&url=http://www.zazzle.es/risa_sonriente_feliz_de_la_mueca_de_la_cara_pegatina-217543355319308788&ei=iiwFU_nmNaSwyQHkq4HYCg&psig=AFQjCNEskqbl5uBE6rGo6bfffXHQptLAdQ&ust=1392934338666064

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=hesD8vy4V9kseM&tbnid=Bf_GG38uILWdfM:&ved=0CAUQjRw&url=http://www.zazzle.es/risa_sonriente_feliz_de_la_mueca_de_la_cara_pegatina-217543355319308788&ei=iiwFU_nmNaSwyQHkq4HYCg&psig=AFQjCNEskqbl5uBE6rGo6bfffXHQptLAdQ&ust=1392934338666064

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=Jw7YPW6e70d_6M&tbnid=cA0xhGSJQaplqM:&ved=0CAUQjRw&url=http://www.designdownloader.com/i/?id=emotion_f051-20111115083028-00005&ei=Oi0FU-WGJ-eCyAGa8IDABA&psig=AFQjCNESDcp87Qtop21qtoo7nStZeO91dg&ust=1392934582448025

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=Jw7YPW6e70d_6M&tbnid=cA0xhGSJQaplqM:&ved=0CAUQjRw&url=http://www.designdownloader.com/i/?id=emotion_f051-20111115083028-00005&ei=Oi0FU-WGJ-eCyAGa8IDABA&psig=AFQjCNESDcp87Qtop21qtoo7nStZeO91dg&ust=1392934582448025

Idea

Self-Analysis of Funding Opportunities

Discovery

Concept

Business Case

Engineering & Prototype

Testing & Validation

Plant Scale Up

Product Launch

Commercialization

Step 1Cross-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 1Cross-reference your product development/innovation management system with direct and indirect funding categories

Ide

a

Dis

cove

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Co

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Bu

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n

Indirect Funding

SR&ED

Other Tax Credits

Direct Funding

Procurement

Funding – Repayable




Step 2: Indirect FundingReview your indirect funding strategy for compliance with the latest Application Policies and government expectations

SR&ED

December 2012 Application Policy

T661(13F) Claim Form Effective Jan 1, 2014

Other Tax Credits?



Does your business plan include projects for?

Business Development

Capital Investments

HR & Training

Innovation

Step 3: Direct FundingUpdate your Business Plan and identify projects within the following categories:



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

Trade shows or foreign customer/dealer shows

Development of e-commerce enabled website

Upgrading of website




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




Innovation New products or processes

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 [email protected]

T 1-866-931-0166 x138

Maria [email protected]

T 1-905-760-7858 x507

Thank you!


mailto:[email protected]

mailto:[email protected]

Government LinksIndirect Funding - Federal:

Scientific Research and Experimental development Program:http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html

SR&ED – First Time Claimanthttp://www.cra-arc.gc.ca/txcrdt/sred-rsde/ftcs-eng.html

SR&ED – Self Evaluation Learning Tool:http://www.cra-arc.gc.ca/txcrdt/sred-rsde/slt-eng.html

SR&ED – New T661 Formhttp://www.cra-arc.gc.ca/txcrdt/sred-rsde/whtsnw/msg-t661-clm-prprr-eng.html

SR&ED – New T661 Form - Guidelineshttp://www.cra-arc.gc.ca/E/pub/tg/t4088/README.html

Indirect Funding – Some Provincial links:

Ontario Interactive Digital Mediahttp://www.omdc.on.ca/interactive/Tax_Credits/OIDMTC.htm

British Columbia Interactive Digital Mediahttp://www2.gov.bc.ca/gov/topic.page?id=73F4621AC32B404D985AF4D6BC0C94B8

Manitoba Interactive Digital Mediahttp://www.gov.mb.ca/jec/busdev/sibd/idm_taxcredit.html

Quebec E-Business tax creditshttp://www.investquebec.com/quebec/en/financial-products/smbs-and-large-corporations/tax-credits/development-of-e-business.html

Nova Scotia – Interactive Digital Media tax creditshttp://www.novascotia.ca/finance/en/home/taxation/tax101/businesstax/corporateincometax/digitalmediataxcredit.aspx

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/ftcs-eng.html

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/slt-eng.html

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/whtsnw/msg-t661-clm-prprr-eng.html

http://www.cra-arc.gc.ca/E/pub/tg/t4088/README.html

http://www.omdc.on.ca/interactive/Tax_Credits/OIDMTC.htm

http://www2.gov.bc.ca/gov/topic.page?id=73F4621AC32B404D985AF4D6BC0C94B8

http://www.gov.mb.ca/jec/busdev/sibd/idm_taxcredit.html

http://www.investquebec.com/quebec/en/financial-products/smbs-and-large-corporations/tax-credits/development-of-e-business.html

http://www.novascotia.ca/finance/en/home/taxation/tax101/businesstax/corporateincometax/digitalmediataxcredit.aspx

Government Links

Direct Funding links:

Industrial Research Assistance Program (IRAP)http://www.nrc-cnrc.gc.ca/eng/irap/index.html

Sustainable Development Technology Canada (SDTC)http://www.sdtc.ca/index.php?page=home&hl=en_CA

Built In Canada Program (Procurement program)https://buyandsell.gc.ca/initiatives-and-programs/build-in-canada-innovation-program-bcip

Fed Dev – Ontario – business loanshttp://www.feddevontario.gc.ca/eic/site/723.nsf/eng/home

Fed Dev – Manitoba – business loanshttp://www.infrastructure.mb.ca/home.html

Research Resources (projects and students)http://www.mitacs.ca/

Ontario - Youth Employment Fund (rest of provinces will get under this program soon)http://www.ontario.ca/jobs-and-employment/employment-programs-people-under-30

http://www.nrc-cnrc.gc.ca/eng/irap/index.html

http://www.sdtc.ca/index.php?page=home&hl=en_CA

https://buyandsell.gc.ca/initiatives-and-programs/build-in-canada-innovation-program-bcip

http://www.feddevontario.gc.ca/eic/site/723.nsf/eng/home

http://www.infrastructure.mb.ca/home.html

http://www.mitacs.ca/

http://www.ontario.ca/jobs-and-employment/employment-programs-people-under-30

Details and Charts


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

Back2

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



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 OverviewFe

der

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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

This presentation is the exclusive property of Alma CG. All rights reserved 2014.32

Impact of 2012 Budget on SR&ED

Pre-2013 Jan 1, 2013 Jan 1, 2014

Enhanced tax credit rate for

small CCPCTI < 800K & up to 3M$ of expenditure

35% 35% 35%

Basic Tax Credit rate for

other entities20% 20% 15%

Capital ExpenditureEquip 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



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



Sub-Contractors 28.0-41.5% 22.4-33.2% 23.5-33.2%


Atlantic



Sub-Contractors 32.0-44.8% 25.6-35.8% 22.2-35.8%


Federal and Provincial combined recovery rates

Back



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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



der

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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 OverviewD

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 documentationBack



der

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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 OverviewO

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



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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



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$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.



der

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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.


Documents

The latest on the financing of innovation in Canada Webinar Alma CG-FINAL3.pdfGlobal Revenue $363M 500+ active clients in Canada Funding of Innovation & Cost Consulting Alma CG is