Adapted from CATAAlliance opinion piece posted on
Canadian Science Policy Centre web site at:
Russ Roberts, Ph.D.
Senior Vice President, Tax, Finance and Advocacy
Comment at CATA SR&ED Network: https://www.linkedin.com/grp/home?gid=3246301
Where is the vision?
While the 2015 federal budget is clearly tempered by pre-election considerations, to us it is lacking in the vision of other earlier budgets.
The useful – if properly refined
We are pleased to see the support it provides to small and medium businesses. However, the tax reduction measure needs to be much better framed to avoid deterring the growth and maturing of the businesses that benefit from it. We hope that all parties can support this measure after proper refinement. We also hope they can support the commitments of this Government to: invest in digital infrastructures; promote cyber security; establish a Public Safety Broadband Network; amend the Small Business Financing Act to improve SME access to capital; and extend the accelerated capital cost allowance by 10 years. This last commitment is especially important for many sectors, particularly manufacturing, as it adds certitude to the status quo.
Does not do much to improve Canada’s ROI on R&D, innovation, and business investment
On the other hand, the 2015 budget does not address what is needed to take full advantage of Canada’s significant investment in R&D, innovation and our businesses. Specifically, what is needed to maximize the ROI (return on investment) for our entrepreneurs and Canadians?
Early on in the Government’s mandates, there was a very encouraging effort to seek out advice and ideas on how to achieve a more effective framework with which to support and encourage Canadian business to innovate and grow their technology successes to the benefit of the Canadian economy. A great deal of learning occurred from this dialogue. Initially, the idea was that Canadians were not innovators. However, the discussion was moved forward, as it was recognized that this was just not true. Our research outputs are world class and so are the innovations our businesses create. Our technologies and technologists are coveted by our competitors all over the world.
The discussion shifted to whether we had too great a focus on indirect support for R&D, e.g., tax credits, and whether enough attention was being given to financing and to ways to better reward the growth and commercialization of our innovative successes.
The question became how to better accrue the benefits to the Canadian economy from Canada's R&D investments rather than just raising Canada's level of R&D. This dialogue culminated in the Jenkins expert panel’s report and the 2012 federal budget. CATA found the 2012 budget to be a useful response to the challenges the Jenkins panel had raised, but we argued that much more still needed to be done, i.e., the 2012 budget was a work-in-progress. Unfortunately, this is still the case in 2015 - we still see little progress.
At best, the 2015 budget more or less maintains the 2012 budget as a work-in-progress
The 2015 budget has not addressed the Jenkins panel’s call to consolidate how federal efforts to support business are evaluated and managed. The report recommended that an independent, arms length agency be created as a common service platform for all appropriate federal business innovation support programs. We argued that support provided through the tax system, e.g., the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program, should be included to provide a more balanced and appropriate environment.
We were cautious about the 2012 budget’s changes to the SR&ED program aimed at simplification. This is not what happened. In fact, today, we hear that the restrictive administrative procedures now being used by the CRA are resulting in the tax credits being downgraded by international investment advisors, because they perceive audit risks even when SR&ED claims are eligible. The Government seems to have had the CRA raise the thresholds for what is considered a compliant claim. The effect has been to greatly reduce the SR&ED program’s uptake and rate of growth, perhaps by a billion or more dollars.
We still think the next Government needs to provide the program’s administrator with a more balanced mandate. That is, one that is more focused on the responsible delivery of an incentive and one less focused on compliance, preparer penalties, etc. The courts seem to support this contention, as they have indicated in a number of cases that the CRA should be reflecting the incentive nature of the program when interpreting the law and when establishing what is reasonable. The unique challenges for the CRA in managing the SR&ED credits as an incentive and the complexities of the program were even recognized by the Government’s consultant when reviewing the program in 2009. Unfortunately, today’s administration still appears to need greater balance.
We do see positive movement since the 2012 budget in the programs of NSERC at the interface of business, and in NRC's efforts to better orient itself to the realities of what businesses need. But, too often, we're still hearing from business people that the tax system has elements that discourage the commercialization and maturing of their investments in R&D, innovation, and the growth of their firms.
Overall, there has been a loss of momentum in creating an effective system of support for business innovation. We argue that the Government has actually lost ground.
Much still needs to be done if Canada is to capitalize effectively on our investments in R&D and innovation, and compete as a mature economy; and if innovative businesses are to achieve their true potential as a pillar of the Canadian economy.
Moving forward – what next?
At this point, many in the community are discouraged and frustrated by the lack of progress after all their effort to encourage and support improvement to Canada’s innovation system. The issue is not necessarily about more spending, but rather it’s simply about how to get more out of the Government’s investments on behalf of Canadian taxpayers and future generations of Canadians.
Recommendations > The federal government needs to create a more cohesive accountability system to ensure that the return on this country’s investment in innovation is maximized, and that it promotes the retention and growth of our investments in innovation, technologies, and technologists. > The promise in the 2012 budget to simplify the SR&ED program needs to be revisited and achieved, and the administrative mandate needs to be balanced. > It is time to take a very close look at the business tax framework to see where barriers to growth can be removed and how to better reward businesses for making, growing and maturing their R&D and innovation investments here in Canada; and, inherently, maximizing the ROI for both entrepreneurs and Canadians.
Canada can do better. Others are. Related Resources: Leverage the CATA platform of resources to engage and influence decision makers on key issues affecting enterprise growth, entrepreneurship and innovation: http://www.cata.ca/Media_and_Events/Press_Releases/cata_pr04241501.html
White Paper prepared by CATA and Wesley Clover: “Canada as a Competitive Innovation Nation: What Needs to be Done?: CATAAlliance 2012 (White Paper)” at: http://www.cata.ca/Media_and_Events/Press_Releases/cata_pr11241101.html
Paper prepared by CATA: “2012 Federal Budget: Where Next: an ICT Transformational Partnerships Program?: Russ Roberts, Senior Vice President, Tax, Finance & Advocacy, CATAAlliance” at: http://www.cata.ca/Media_and_Events/Press_Releases/cata_pr06151201.html
CATA Advisory: “What’s happened to SR&ED support for the Digital Sector? A reduction of at least $1 billion annually has occurred in the SR&ED Tax Incentive Program” at: http://www.cata.ca/Media_and_Events/Press_Releases/cata_pr01291402.html
White Paper prepared by CATA: “Canada’s Innovation/Technology leadership: Others do better. Can Canadian governments improve on our investments in research and technology based innovation?” at: http://docs.google.com/document/d/1qD5DV0E8yialTMXuwWr2ZlN20TS203NO8gZWr7zwlbI/edit?usp=sharing
Report by Paul Daniel Muller -- review of the SR&ED Program for the Minister of Revenue: Unredacted version released by the Department of Finance under Access to Information: CATAAlliance at: http://www.cata.ca/Media_and_Events/Press_Releases/cata_pr11241401.html