CATAAlliance Federal Budget Highlights, March 4, 2010
March 5, 2010

Russ Roberts
Senior Vice President
Tax and Finance
CATAAlliance
ruroberts@cata.ca
613-290-2911

Advisory:
The Harper Government appears to be slowly shaping an Innovation Agenda and accepting the need for corrective actions to promote investments. Albeit, an overall plan, either conceptual or component-wise, has not been expressed. At this point, the Government looks for more input from business leaders. This could be an opportunity for CATA members to lead with new ideas and new solutions.

Key results CATA was looking for:
  1. Climate for Foreign Venture Investment in Canadian firms improved. The 2010 Budget proposes that:

    "Narrowing the definition of taxable Canadian property will eliminate the need for tax reporting under section 116 of the Income Tax Act for many investments...."

    The aim is specifically the elimination of this barrier to foreign venture investment, a key initiative of CATA this year.

  2. A cohesive plan to eliminate Canada's productivity gap through Innovation and Commercialization. The Budget calls for the development, through consultations with business leaders, of a "Digital Economy Strategy". Is this Minister Clement's "Technology Plan" that we have been discussing? Nothing else is known. It is wait and see, and input.

    "The Government will develop a Digital Economy Strategy that will enable the ICT sector to create new products and services, accelerate the adoption of digital technologies, and contribute to improved cyber security practices by industry and consumers."

  3. The Administration of the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program be improved and stabilized to support full entitlements as envisaged by Parliament and the current legislation be refined to more effectively support commercialization of Canadian technological developments and innovation. The Budget and the Throne Speech committed that:

    "[The Government] will aggressively review all departmental spending to ensure value for money and tangible results." (Throne Speech, March 3, 2010)

    "The Government will undertake a comprehensive review of government administrative functions and overhead costs in order to identify opportunities for additional savings and improve service delivery. Simplification of processes and delivery mechanisms will improve access to government services and reduce costs of program delivery. The Government will report on the results of this review in the 2011 budget."

    "...the Government, in close consultation with business leaders from all sectors and our provincial partners, will conduct a comprehensive review of all federal support for R&D to improve its contribution to innovation and to economic opportunities for business. This review will inform future decisions regarding federal support for R&D. The Government is currently developing the terms of reference for the review." (The Budget explicitly highlights the SR&ED tax credits in this respect.)
Observations by Russ Roberts:
From CATA's perspective, with the exception of the certificates under section 116 of the Income Tax Act, this Budget comes up very short on solutions and concrete actions. It could be looked upon as simply more talk. Yet, this is the first Government in decades that:
  • has done the background work to move the discussion forward on Canada's Innovation Gap; and
  • committed to working with business leaders to develop an effective approach to eliminating that Gap.
Assuming that the key ministries can find a cohesive set of solutions and a plan, this commitment is very positive. Currently, Canada is generally acknowledged to spend more and get less in return than many nations. It is time to find out why the Gap exists; to develop new, innovative thinking; and get to the comprehensive plan that CATA has called for.

Action:
We will be looking for your ideas and comment. The Government's key ministers and members of Parliament need to know of your support for finding solutions and to hear your thoughts on what changes are needed.

The SR&ED tax credits will certainly be a key component of the equation. And, once again, what's needed and why needs to be communicated to the right people. There has been a great deal of change in the CRA, including the rapid rotation of Ministers. As a result, there are inherently disconnects as the Agency's leadership evolves.

The key Ministers responsible for these reviews will be the Minister of Finance, the Minister of Industry, and the President of the Treasury Board. We suggest that these Ministers, as well as Minister Ashfield, the recently appointed Minister of National Revenue, be made aware of what is going well with the SR&ED Program, what your concerns are, and priorities for change.

Please send us your comments:
Russ Roberts, ruroberts@cata.ca.

Background and Budget Updates: