Alert: Deadline for Submissions to the Federal Review of Support for Business Innovation - February 18th
SR&ED Update & Alert & Call to Action, January 2011
Dr. Roberts identifies SR&ED issues and concerns and opportunities for consultation and advocacy. He talks about CATA's research methodology, including social networks utilized to validate industry positions.
Senior Vice President
Tax and Finance CATAAlliance
++ Action Item
Federal Innovation Programs, including SR&ED, to be reviewed - Industry Submissions due February 18, 2011
In October, the Federal Government announced the formation of an “Expert Panel” headed by Tom Jenkins, Executive Chairman and Chief Strategy Office of Open Text, to review the programs currently used to promote business innovation. The Panel is to make recommendations on how to more effectively use the approximately $7 billion now spent in the programs. About $3.5 billion in SR&ED tax credits are to be included in this review. Their report is due in one year.
For details, including the Panel's consultation paper, go to: http://rd-review.ca/eic/site/033.nsf/eng/home
Comment on the announcement in The Globe and Mail
, October 18, 2010, can be found at: http://www.theglobeandmail.com/report-on-business/commentary/barrie-mckenna/ottawa-takes-another-shot-at-getting-rd-on-right-track/article1761323/?cmpid=rss1
For key reports on Canada's Innovation Gap and our take, go to our October SR&ED Update at: http://www.cata.ca/Advocacy/SRED/updates/sred_update_Oct10.html
Those of us concerned with the current state of the SR&ED Program who believe that well crafted tax legislation and administrative practices are needed are faced with consultation overload and are frustrated. Once again, we are being asked for comment when little has been achieved after a lot of input in the past. In addition, in the case of CRA's policy consultations there are serious issues still outstanding related to the transparency of the process.
Specifically, three important exercises are now taking place at the Federal level:
- the CRA's ongoing "Policy Consolidation and Clarification Project";
- the Taxpayers' Ombudsman's Systemic Review of the Program; and
- now, the Federal Review of R&D Support being conducted by the Panel led by Tom Jenkins.
All are entwined and equally important if improvements are to be obtained.
The first two have the potential for immediate positive impacts on Canadian businesses if the current consultations on the upcoming Federal Budget can persuade the Government to act on outstanding issues. The Panel's Review is what is best termed a framework study and is much less likely to show short-term results. This is not to say that recommended changes could not be very profound in the long term. For example, the Panel could recommend the abandonment of Canada's traditional emphasis on tax based incentives - definitely a topic to be explored by the Panel.
It is frustrating that we have been consulted and encouraged by the Government to believe that improvements will be made to the SR&ED Program ever since the 2008 Federal Budget committed an annual increase of $10 million to the CRA so they could improve the program. Specifically, the Budget stated that: the CRA "...will review the program's policies and procedures to ensure they are aligned with current business practices...."
Given the consternation being expressed throughout the discussions we are having with the SR&ED user community, these promised improvements simply have not happened. CATA is looking for at least interim improvements to the SR&ED Program to assist companies that are in difficulty today. The danger, in our opinion, is in simply focusing only on the Panel's framework review of R&D and not seeking immediate improvements of the CRA from the Federal Government as they craft their plans for the 2011 Budget.
We have discussed the dilemma with Government officials and with our colleagues who are working on the Innovation file in the other leading national business associations.
Our advice is that you develop tight, short, and focused submissions. It would be important to provide your submission to both the Panel and to Government officials developing the upcoming Federal Budget. We believe that it is important for submissions to get across:
The discussions that we are having with Government officials indicate that if tax incentives are to be included in the mix recommended by the Panel, it will be very important to show the Panel how well tax incentives can work, when they have worked, the conditions that allow them to work, and those conditions that must be avoided to let them work.
- the difficulties that companies are experiencing with the SR&ED Program and the impacts on companies and their investments;
- that CRA's senior management needs to be asked why they do not get this thing fixed and CRA needs to be mandated to move on fixing it; and
- that the Panel needs to work to define an environment in which tax incentives can work effectively in conjunction with the proper mix of other programs as long-term, coordinated encouragements to innovative business practices that effectively commercialize Canadian innovations.
CATA will be making a formal submission to the Panel and to the Government in support of improving tax based incentives for innovation. We will be drawing from our historical work and the current discussions of the CATA LinkedIn SR&ED Group
Please provide us with your thoughts and recommendations.
The Panel's Consultation Paper asks for input on a number of issues about the need for long-term change and the proper mix of incentives, including the SR&ED Program. Some key questions raised in the Consultation Paper include:
What federal initiatives are most effective in increasing business R&D and facilitating commercially relevant R&D partnerships?
Is the current mix and design of tax incentives and direct support for business R&D and business focused R&D appropriate?
What, if any, gaps are evident in the current suite of programming, and what might be done to fill these gaps?
With which federal programs supporting business or commercially oriented R&D in Canada do you have direct experience and knowledge?
In your view:
a. Which of these programs are working, and why?
b. Which programs are not working, and why not?
If you have direct experience and knowledge of the SR&ED tax credit, what are your views in relation to the following:
a. Does the current structure of the SR&ED tax credit encourage incremental investment in R&D? Does it free up capital to invest in other aspects of innovation activities in the firm? Does this vary by size, ownership, sector or nationality of firm?
b. What are the strengths and weaknesses of the refundable portion of the SR&ED tax credit for Canadian-controlled private corporations and to what extent does it encourage the growth and commercial success of SMEs?
c. Bearing in mind the improvements being made by the Canada Revenue Agency, are there additional opportunities for change to simplify the administration of the SR&ED tax credit and facilitate the applications process?
How could the Government of Canada lighten the administration requirements of its programs on recipients and improve outreach to business?"
Four key Ministers to contact
Contact details: http://webinfo.parl.gc.ca/MembersOfParliament/MainCabinetCompleteList.aspx?TimePeriod=Current&Language=E
Minister of Finance - The Honourable Jim Flaherty
Minister of National Revenue - The Honourable Keith Ashfield
Minister of Industry - The Honourable Tony Clement
Minister of State for Science and Technology - The Honourable Dr. Gary Goodyear