Letter to Ministers regarding the effectiveness of Canada's SR&ED program in advancing Canada's Innovation & Competitiveness Performance
August 19, 2011

++ Action Item:  As part of advancing CATA Innovation Nation advocacy, our SR&ED team led by Dr. Russ Roberts, Sr. VP of Tax & Finance, CATAAlliance is providing key Ministers with a status report on the SR&ED program in the form of a letter to Ministers, including, Jim Flaherty, Finance Minister; Maxime Bernier, Minister of State for Small Business; John Baird  Foreign Affairs Minister; Ed Fast: International Trade Minister, Gary Goodyear: Minister of State (Science and Technology); Ted Menzies: Minister of State (Finance); and, Chrian Paradis, Industry Canada Minister.

Should you have any feedback or guidance on the SR&ED Program please contact Dr. Roberts at "Russ Roberts" <sredcomment@cata.ca>

Dear Ministers

We are writing to you on behalf of the CATAAlliance Board of Directors and our many members across Canada.  As you know, the success and effectiveness of Canada's SR&ED program is extremely important to advancing Canada as an Innovation Nation and to the advanced technology community at large who reply on these incentives to grow their businesses. These incentives are also a powerful attractor of new Canadian R&D mandates. 

It is in this context that we  would like to bring to your attention and to your colleagues our recent August Update on the program,  prepared by Dr. Russ Roberts, Senior Vice President , Tax and Finance, CATAAllaince who is one of Canada's thought leaders on the SR&ED credits.  It can be viewed at:

http://www.cata.ca/Advocacy/SRED/_11/August2011Update.html 

The Update summarizes what we are currently hearing from our members and through our social media networks about newly proposed restrictive positions on what is to be treated as SR&ED and how it is to be conducted as well as review practices that are out of synch with the realities of how businesses need to operate to be effective.

The commentary is concerning for it suggests an administration that continues to remain out of touch with what is needed to deliver the cost effective incentives that were conceived by Parliament when the legislation was established.

In the update, we outline some of our key concerns raised by senior executives which include: 

"1)    how can an Agency with a purely administrative role have strayed so far that it has become the de facto leader in the establishment of Canada's innovation policy; and

2)      given its track record - and, the CRA has had two decades to get it right -  can the CRA be expected to be or become an effective, reliable, and stable steward of the Government's fiscal policies that promote innovation?"

We note in the Update

"CATA believes that tax incentives are a key tool in the cadre of programs Canada needs to use to encourage innovation in Canadian businesses.  Certainly, many CATA members have used and are using the credits to leverage their investments. However, many are now reporting that CRA's new, restrictive view of SR&ED as expressed in the draft policy is currently being applied retrospectively in today's audits.

The impacts are significant and restrictive; and, in the extreme, put firm's investments at risk. Status quo is hard to support for the reasons you have highlighted in your comments to us and for the reasons highlighted in the SR&ED discussion Groups.

CATAAlliance believes that an appropriate environment for these incentives can be found and we note that members have suggested that it may be outside of the CRA, for at least some of the functions."

We trust that this information will serve as useful guidance for your Ministry in helping to advance Canadian innovation and competiveness and should you or your officials need further clarification we would be pleased to provide it.

Yours sincerely,

John Reid, President & CEO
CATAAlliance
www.cata.ca
jreid@cata.ca

Cc CATAAlliance Board members