What expenses are eligible under federal construction innovation challenges?

Federal construction innovation challenges help Canadian builders test new ways to design and deliver housing. A common question is what costs you can actually claim. Using the Off-Site Construction Challenge from Natural Resources Canada (NRCan) as a reference point, this guide explains the types of expenses that are typically eligible — and which ones are not.

The Off-Site Construction Challenge is part of NRCan’s Energy Innovation Program. It focuses on modular, prefabricated, and other off-site construction approaches that improve energy performance, speed, and housing resilience.

Eligible expenses under the Off-Site Construction Challenge

Federal innovation challenges do not fund day-to-day construction the same way infrastructure programs do. Instead, they focus on innovation-related project costs that help prove, test, or scale a new approach.

Based on NRCan’s program guidance and standard federal innovation funding rules, eligible expenses under the Off-Site Construction Challenge generally fall into the categories below.

1. Labour and professional services

You can usually claim labour costs that are directly tied to the innovation project, such as:

Engineers, architects, and designers working on off-site construction systems
Project managers dedicated to the challenge project
Technical staff involved in prototyping, testing, or system integration
External consultants for energy modelling, lifecycle analysis, or manufacturing optimization

Only the portion of time spent on the eligible project can be claimed. General company salaries unrelated to the project are not eligible.

2. Prototype development and testing costs

Innovation challenges prioritize proof and demonstration. Eligible expenses often include:

Design and fabrication of modular or prefabricated prototypes
Materials used specifically for testing or demonstration units
Performance testing, commissioning, and validation activities
Third-party testing required to verify energy or building performance

These costs must be clearly connected to demonstrating the off-site construction solution, not full commercial production.

3. Equipment and tools (project-specific use)

Some equipment costs may be eligible when they are essential to the innovation work, such as:

Specialized manufacturing or assembly tools used for prototype development
Sensors, monitoring equipment, or testing instruments
Software licences required for design, simulation, or energy modelling

Typically, only the depreciated or project-use portion of equipment costs can be claimed, not the full purchase price.

4. Materials and supplies

You may be able to claim materials that are:

Used directly in prototype builds or pilot units
Required for testing, validation, or demonstration
Consumed during the innovation process

Materials used for standard commercial construction outside the project scope are usually excluded.

5. Travel and collaboration costs

Federal innovation challenges often encourage collaboration. Eligible travel expenses may include:

Travel to project sites, testing facilities, or partner locations
Transportation costs related to prototype delivery or demonstration
Accommodation and per diems, if aligned with federal travel guidelines

Travel must be reasonable, documented, and directly tied to the funded project.

Because challenges are designed to advance the sector, eligible expenses can include:

Data collection and performance reporting
Preparation of technical reports or case studies
Knowledge-sharing activities required by NRCan

Marketing or sales promotion costs are not considered eligible knowledge-sharing expenses.

Tools like GrantHub’s eligibility matcher can help you filter innovation programs by sector, funding type, and project stage in seconds — especially useful if you are comparing multiple federal challenges.

Expenses that are usually not eligible

While each challenge has its own rules, the following costs are commonly excluded:

Land purchase or real estate acquisition
Permanent buildings not tied to innovation testing
General operating costs unrelated to the project
Debt repayment or interest costs
Marketing, advertising, or sales activities
Costs incurred before project approval

Always confirm exclusions in the official program guide before finalizing your budget.

Common mistakes to avoid

Including full construction costs
Innovation challenges do not pay for standard build-outs. Only the innovation-related portion is eligible.
Claiming 100% of equipment purchases
Most programs only allow the portion of equipment use tied to the project, not the full purchase price.
Mixing commercial and innovation expenses
Costs must be clearly separated. Weak cost breakdowns are a common reason budgets are reduced.
Starting work before approval
Expenses incurred before formal approval are typically ineligible, even if they support the same idea.

Frequently Asked Questions

Q: Is the Off-Site Construction Challenge funding repayable?
No. Challenge-based funding under NRCan’s Energy Innovation Program is typically non-repayable, provided project conditions are met.

Q: Can I use the funding for a full housing development?
No. Funding is intended for innovation, testing, and demonstration. Full commercial developments are usually outside scope.

Q: Are SME applicants treated differently from large firms?
Eligibility rules are the same, but SMEs often focus on smaller-scale pilots or prototypes that fit challenge objectives.

Q: Can this funding be stacked with other grants?
Often yes, but you must disclose all other government funding. Total stacking limits may apply.

Q: Do I need third-party testing to claim expenses?
If testing is required to validate performance or meet evaluation criteria, those third-party costs are usually eligible.

Next steps

Eligible expenses are one of the most important — and most misunderstood — parts of federal construction innovation challenges. Before you apply, map each budget line directly to innovation outcomes the challenge is trying to achieve.

GrantHub tracks active federal and provincial innovation programs across Canada — including construction and housing challenges — so you can quickly see which ones match your business profile and project stage.

What expenses are eligible under federal construction innovation challenges?