AFO · Stack
The Canadian tech non-dilutive duo, layered correctly.
SR&ED and IRAP are the two workhorses of Canadian R&D funding. They cover overlapping eligible expenditures but work through fundamentally different mechanisms, SR&ED is a refundable tax credit claimed in arrears against the corporate return; IRAP is a contribution program with pre-approval and draw-down funding. Run together on the same project, the two programs fund a meaningful share of a Canadian tech company’s technical labour. The trap is the interaction: IRAP contributions are government assistance that reduce the project's qualified SR&ED expenditures, so the SR&ED claim has to be calculated net of the IRAP funding, and the timesheet discipline matters.
What this stack delivers
- IRAP funds the project as it happens; SR&ED refunds the pool at year-end.
- IRAP funding reduces the SR&ED claim base, timesheet discipline matters.
- Combined: 40 to 60% of internal technical labour funded non-dilutively.
How this stack works
SR&ED + IRAP, layered correctly.
IRAP funds the work as it happens. Submit a project plan, get approved, draw down funding against approved technical-salary expenditures (up to 80% of internal technical salaries on the approved project; contractor costs at lower rates). The advisor relationship that comes with IRAP often matters as much as the funding, the NRC industrial technology advisor reviews the project, sees the broader landscape, and is a useful technical-business sounding board through the project.
SR&ED claims in arrears, filed with the corporate T2 return. CCPCs get 35% refundable on the first $6,000,000 of qualified expenditures, 15% above that, 40% of it refundable for a qualifying CCPC. Provincial R&D credits can be claimed alongside (Ontario 8%, BC 10%, Quebec's rate depends on company size), and a provincial credit reduces the federal claim base. The 18-month claim window after fiscal year-end is the most common miss, once the window closes, the credit is permanently lost.
The stacking rule is the key compliance point: IRAP funding doesn't make the hours ineligible for SR&ED, but it is government assistance that reduces the project's qualified SR&ED expenditures. The CPA scopes the eligible expenditure pool against the IRAP-funded portion before the work starts, sets up the timesheet structure so IRAP-funded costs are tracked against the SR&ED claim, and files the SR&ED claim disciplined to the 18-month window. Done well, the combined non-dilutive layer covers 40 to 60% of a pre-revenue or early-revenue technical company’s technical labour.
2 layers in the stack
The layers, in order.
Each layer below names the program AND the role it plays inside this specific stack, what it funds, how much of the structure it covers, and how it interacts with the layers above and below.
Family: Grants & refundable tax credits
Role in this stack: Pre-approved contribution covering up to 80% of internal technical salaries on the approved project; pairs with an NRC industrial technology advisor.
Typical size: $50,000 to $10,000,000 per project
Family: Grants & refundable tax credits
Role in this stack: Refundable tax credit on the remaining eligible expenditure pool, filed with the T2 return in arrears.
Typical size: 35% refundable on the first $6,000,000; provincial credits can be claimed alongside (they reduce the federal claim base)
When this stack fits
Who this is the right answer for.
Canadian CCPCs running technical-labour-heavy R&D projects, software, hardware, biotech, advanced manufacturing. The default non-dilutive stack for pre-revenue and early-revenue technical companies.
Common variations
Provincial digital media tax credits (Ontario IDMTC, BC IDMTC, Quebec CDAE) layer on top for interactive digital media work. Regional development agency programs add a third layer for businesses in eligible regions with local economic impact.
Common questions
Questions people ask about this stack.
The answers below are the specific Q&A patterns that come up on this combination. For broader AFO questions, the main module FAQ on the module landing page covers the cross-stack basics.
Other stacks
Different question, different combination.
Each stack solves a distinct capital-structuring question. The ones below cover the other common shapes, non-dilutive R&D, leverage stacks for buyouts, project-grant stacking for clean tech, working-capital cycles for exporters, and the broader owner-operator default.
- 3 layers
MBO leverage stack
Management buyouts are leverage transactions first and equity transactions second. The senior tranche carries the cheapest dollar but the tightest covenants; the mezzanine layer unlocks the upper-leverage band at higher coupon; the vendor note bridges the equity-injection gap; the management team injects the equity that closes the deal. Each layer has distinct economics that compound over the five-to-seven years it usually takes to retire the debt, and the wrong ratio at close costs the management team materially at exit.
Read the stack
- 5 layers
Clean-tech grant stack
Canada has built one of the deepest federal funding stacks in the world for clean technology, but the programs don’t self-orchestrate. Each has its own application, eligibility, and matching-capital rule. The skill is layering them coherently so the project carries the lowest blended cost of capital without disqualifying itself from any individual program by stacking-rule conflict. Done well, refundable tax credits and IRAP contributions cover a meaningful share of project cost, with the balance covered by repayable government contributions, senior debt, or strategic equity.
Read the stack
- 5 layers
Exporter stack
Exporters face two distinct capital gaps simultaneously: the up-front cost of entering a new market (research, travel, trade shows, IP protection, translation) and the working-capital cycle of fulfilling export orders (longer DSO, currency exposure, foreign-buyer credit risk). Different instruments cover each gap; the right structure layers two or three of them together rather than picking one. The CPA designs the financing plan and the FX hedge against the same set of assumptions so the export plan and the capital plan don’t drift apart.
Read the stack
Stack design is where the engagement starts.
Twenty-minute call. Bring the business profile and the capital ask; we’ll walk through which layers fit, which programs in each layer to pursue, and the sequencing that keeps lenders and grant programs from tripping on each other.