A comparison of the administration of the Canadian Scientific Research and Experimental Development (SR&ED) tax credit program to the UK R&D tax credit program
++ Action Item: Executives interested in SR&ED tax credits should review RDP Associates research (18 pages) comparing the Canadian Scientific Research and Experimental Development (SR&ED) tax credit program to the UK R&D tax credit program.
This research supports CATAAlliance Advocacy entitled, “SR&ED Advocacy Making the Case for a New 3 billion dollar SR&ED Tax Credit Authority: Canada's Innovation Rankings Jeopardized.”
The purpose of this paper is to compare, review, and comment on the effectiveness of the administration of Canada’s Scientific Research and Experimental Development (SR&ED) tax incentive program and the UK’s Research & Development (R&D) tax relief scheme.
As this paper will demonstrate both countries’ programs have essentially the same criteria as to what constitutes eligible SR&ED/R&D for the purposes of earning a tax credit. In fact, the UK R&D tax relief scheme, which came into effect between 2000 and 2002, was modeled in large part on the SR&ED tax incentive program, implemented in 1985.
While the criteria for a project to qualify under both the Canadian and UK programs are the same from a technological perspective, the manner in which the programs are administered by Canada Revenue Agency (CRA) and Her Majesty’s Revenue and Customs (HMRC), respectively, is strikingly different.
We can see the results of these differences come through in the rankings of each country on the R&D/Innovation Ranking. While the UK was able to propel itself from 14th place to 2nd place, Canada has faltered from 12th place to 16th place.
The UK also tracks and regularly reports on the effectiveness of its R&D tax credit program. HMRC publishes these results using econometric studies. For every £1 of R&D tax credit given out, £1.53 to £2.35 of additional expenditure by UK firms is generated (HMRC Evaluation of Research & Development Tax Credit March 2015, Rigmor Kringelholt Fowkes, João Sousa, and Neil Duncan).
Unfortunately, CRA does not report these findings. There have been econometric studies in the past by other non-CRA organizations on the SR&ED program but none have been completed in the last 5 years, to our knowledge. This is a significant and inexplicable accountability flaw within the program.
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