The Honourable Jean-Pierre Blackburn, Minister of National Revenue: Urgent Call for a meeting to reinforce the SRED program’s administrative efficiency and effectiveness
December 16, 2008

CATANet TV video: http://www.youtube.com/watch?v=hFNaV6ilGIU

December 14, 2008

 The Honourable Jean-Pierre Blackburn
Minister of National Revenue, and
Minister of State (Agriculture)
7th Floor
555 MacKenzie Avenue
Ottawa  ON  K1A 0L5 

Dear Minister Blackburn

The Directors of the Canadian Advanced Technology Alliance (CATAAlliance) have asked that I bring to your attention the Alliance’s concerns with the current changes in the CRA’s management of the SR&ED Tax Incentive Program.  As part of the Government’s consultations for the Economic Stimulus package, we ask that you take a leadership position in these matters.  Specifically, we hope that you will be able to reinforce your Government’s commitment to making the program’s administration efficient and effective at this critical time by meeting with business officials. 

These changes are insensitive to business realities and will critically diminish the SR&ED Tax Incentive Program’s effectiveness as an incentive by creating unacceptable distortions in what the program supports and in the way businesses need to operate.  

The changes are being made as part of your Government’s commitment to improving the program as set out in the 2008 Budget, a commitment we have strongly endorsed.  

However, at first glance, the changes seem more driven by the bureaucracy’s needs rather than by the country’s needs for a program that provides efficacious incentives across the full spectrum of technological innovation.  This includes what is critically needed today at the commercialization edge.  I know you are sensitive to this need given your experience with the Quebec economic development portfolio and your constituency. 

The CRA’s new requirements and policies particularly impact on the larger firms, such as those in the forestry, metals, automotive, chemical, and IT sectors, because they do not take into account how large firms need to integrate effectively their SR&ED within the broader context of development requirements.  If the Agency is attempting to solve problems associated with the smaller firms’ use of the tax credits, the solutions should not impose regimes and policies on the larger firms that weaken their competitiveness.  Claims from the larger firms represent approximately 66% (or close to $3 billion) of the total value of tax credits earned annually through the program.  Requiring these firms to distort their business practices at this time is an unacceptable and costly disruption.  This is particularly true given the current economic conditions. 

Specifically, as we recently explained to Andrea Kent of your office in a meeting with Dan Goldberger of the Canadian Electricity Association (CEA), these changes impact on the ability of Canadian business to compete at a moment in our history when such changes can least be tolerated.  In this meeting, we emphasized that it was one thing to have on paper a world class credit and another to deliver it. 

I am providing you an early release of the CATAAlliance’s call for Government action on this matter and a copy of my recent letter to Mr. Baker calling for a roundtable meeting of yourself and senior leaders from larger Canadian businesses.  The objective of the roundtable would be to allow the representatives to outline for you and Mr. Baker their concerns, the impact they see that the new requirements and policy changes will have on their firms, and to better understand the impetus behind the changes. 

As well, even though the new claiming requirements are effective only for taxation years ending after December 31, 2008, the CRA is applying them retroactively in a de facto sense to prior years.  We called on Mr. Baker to ask his officials to reissue as soon as feasible the electronic forms needed to file claims for taxation years prior to December 31, 2008 using the old approaches.  

It was through the intervention of Minister Flaherty that we were able to engage the Department of Finance and the CRA in receiving consultative input and in achieving the commitments of the 2008 Budget, i.e., the commitment to review the many issues of growing concern to the community.  The support of Mr. Flaherty on this file has been very encouraging and we look forward to working with you and your office on this matter. 

John Reid
President
CATAAlliance

c.c.:

The Honourable Jim Flaherty, Minister of Finance
The Honourable Tony Clement, Minister of Industry Canada
Pierre Guimond, President and Chief Executive Officer, Canadian Electricity Association (CEA) 
Dan Goldberger, Senior Advisor, Finance & Taxation, Canadian Electricity Association (CEA) 
Russ Roberts, Senior Vice President, Tax and Finance, CATAAlliance