Ontario Budget Recommendations: Ontario Innovation Tax Credit and SR&ED
February 20, 2009

CATAAlliance letter


Date: February 20, 2009

 

Dalton McGuinty, Ontario Premier

Legislative Building

Queen's Park

Toronto ON M7A 1A1

 

 

Dear Premier McGuinty:

We are writing to you at this critical juncture for Ontario’s IT sector on behalf of the Board of Directors of the Canadian Advanced Technology Alliance (CATAAlliance).  This sector must regain its traditional innovative edge if Ontario is to move forward effectively. 

 

We believe that it is critical for your Government’s next Budget to address the issue faced by the sector as you re-establish the framework for long-term growth in Ontario. 

 

As an introduction, I am providing you with a copy of a recent white paper issued by CATAAlliance that outlines the crisis that has occurred in Ottawa’s high-tech cluster.  In recent years, a critical mass of core knowledge, leadership, businesses, and professionals have all been lost to more competitive environments offshore.  What has happened in this once thriving cluster is simply a microcosm of the challenges that were being encountered throughout Ontario’s IT sector, even before the current economic crisis.  

 

The Ontario Innovation Tax Credit (OITC) coupled with the Federal Government’s Scientific Research and Experimental Development (SR&ED) Tax Credits are the key sources of government support for business innovation in Ontario.  The Ontario Innovation Tax Credit needs improvements. 

 

Ontario has already proposed extending the OITC by paralleling the enhancements to the refundable SR&ED Tax Credits proposed in the 2008 Federal Budget.  Specifically, Ontario has already proposed that: 

·        the OITC expenditure limit be increased from $2 million to $3 million of qualifying SR&ED expenditures; and

·        the taxable income phase-out range of between $400,000 and $600,000 under the OITC be extended to a new upper limit of $700,000 of taxable income.

 

We recommend that:

 

·        Ontario should also parallel the federal improvement to the refundable SR&ED Tax Credits provided in the 2009 Federal Budget, January 27, 2009, by extending the taxable income phase-out range to between $500,000 and $800,000 for the Ontario Investment Tax Credit. [1]

 

While this may seem like a small change, it is important and will be helpful.

 

     

·        We also propose a new, additional 5% Ontario SR&ED tax credit.  It would be non-refundable but could be used to offset any provincial government remittances if a company did not have sufficient Ontario corporate tax payable to utilize the credit.

 

The proposed, new 5% Ontario SR&ED tax credit should be made available for all SR&ED expenditures not currently eligible for the OITC (either because a company is not eligible to access the OITC or because a company’s SR&ED expenditures exceed the new $3 million limit).

 

·        Finally, we urge the Ontario Government to work closely with stakeholders to understand their concerns with issues arising from the current administrative practices of the Canada Revenue Agency (CRA), the administrators of the SR&ED program for the Province of Ontario.  It will be extremely important that Ontario firms are able to access the credits with confidence if the credits are to influence business decisions. 

 

In respect to these concerns, we note that the Federal Government committed to improvements in their 2008 Budget.  However, many Ontario companies represented by organizations such as CATAAlliance and the Canadian Manufacturers & Exporters (CME) are still, today, expressing strong reservations about the effectiveness of the CRA’s processes.  It will not be good enough for Ontario to simply improve the OITC and offer a new tax credit.  The Provincial Government needs to see that the administrative reforms required to ameliorate the community’s current concerns are rapidly and effectively implemented. 

 

We would ask that you and/or the appropriate Ministers who need to better understand these issues meet with Allen Berg, Chairman of Computer Methods International Corp. (CMiC), who is also the CATAAlliance board member responsible for this file in Ontario; and with Russ Roberts, our Vice President, Tax and Finance. 

 

Thank you.

 

 

 

John Reid

President

CATAAlliance

 

 

c.c.:      Michael Bryant, Minister of Economic Development

            Dwight Duncan, Minister of Finance, Minister of Revenue

Allen Berg, Chairman, Computer Methods International Corp. (CMiC), and member of Board of Directors, CATAAlliance

            Karen Wensley, Ernst &Young

            Russ Roberts, CATAAlliance



[1] 2009 Federal Budget, Annex 5, “Business Income Tax Measures”, “Small Business Limit”.