Scientific Research and Experimental Development (SR&ED)
Update and Advocacy Alert
October 20, 2010
It’s time to get to a solution
Russ Roberts, Ph.D.
Senior Vice President, Tax and Finance
Government Appoints Expert Panel on Business Innovation – CATA’s Increasing Concerns for the SR&ED Tax Incentives
The Government has just announced that an expert panel is being set up to review all federal programs that provide support for business innovation. In one year, the panel is to report back to the Minister of State (Science and Technology) with recommendations on how to maximize the effectiveness of the Government’s $7 billion annual investments to encourage business R&D investment. The six-member panel will be chaired by Thomas Jenkins, Executive Chairman and Chief Strategy Officer of Open Text. The announcement gives prominence to the review of the $3 billion plus Scientific Research and Experimental Development (SR&ED) Tax Incentive Program. For further details, see http://rd-review.ca/eic/site/033.nsf/eng/h_00003.html, and the report of the Coalition for Action on Innovation in Canada released October 13, 2010, at http://www.ceocouncil.ca/en/view/?area_id=1&document_id=1423
We strongly support the comprehensive review of federal programs that support business innovation, particularly tax based incentives. We understand the need for the panel to have sufficient time to consult and get the structural framework right. However, the immediate challenges created by the CRA’s current administration of the SR&ED Program are really an issue of how to effectively administer tax incentives - not an issue of what is the best framework to promote business innovation. Waiting one year just for recommendations from the panel is far too long, given the problems being encountered by those who currently use the SR&ED Program.
Specifically, in our discussions with Government officials, CATA has emphasized that the administrative problems of the program are immediate and need a solution now. Delaying the implementation of a solution means that firms that need the SR&ED tax credits will continue to be damaged for at least a year longer. Current and potential jobs will continue to be lost to more competitive offshore environments.
Initially, it was the larger firms that were impacted by the CRA’s administrative changes. Since the implementation of the CRA’s new SR&ED Claim Review Manual, effective June 1, 2010, we are more and more hearing of small- and medium-sized firms being adversely impacted as well.
After 5 years of surveys, consultations, and reviews of the SR&ED Program, it is time that the Government resolve the problems with the administration of the SR&ED Program on an urgent basis for its current users, regardless of how tax incentives fit into a new framework.
CATA calls on the CRA and the Ministers of National Revenue and Finance to table a solution that can immediately bring the SR&ED Program’s management back into synch with the historical roots of the program.
Recent Activities of CATA
CATA has facilitated discussions between senior Government officials and leading companies using the non-refundable SR&ED tax credits. These companies represented a cross-section of sectors key to the Canadian economy. All depend on innovation to remain competitive. All stressed the importance of the credits to their firms’ Canadian investments. The message was that the CRA’s administrative practices were a very serious challenge to the program’s effectiveness and that a solution needed to be found.
Based on input we received from leading practitioners familiar with the program, CATA developed and tabled a white paper highlighting the problems with the CRA’s administration of the program, and their impacts. As well, the white paper outlines the parameters for viable solutions. The white paper can provide a base from which a blueprint for action to solve the administrative problems of the program can be quickly developed.
Specifically, the white paper focuses on the key administrative elements that are needed to change so the SR&ED Program can function as an effective tool for promoting business innovation. It highlights the cost of not making the necessary changes, and calls for solutions. For a copy of Key Elements for the Success of the Scientific Research and Experimental Development (SR&ED) Program as an Incentive, go to http://cata.ca/files/PDF/Resource_Centres/SRED/SRED_Key_Elements__for_SuccessCATAbrief.pdf.
In August, CATA alerted the community that the CRA had issued new, very stringent review protocols that were to be applied to claims, effective June 1, 2010. That is, the CRA is applying the new review protocols retroactively. Please see CATA’s August 2010 Alert and Call to Action at http://cata.ca/Advocacy/SRED/updates/sred_update_July10.html. We provided further details in our September 2010 SR&ED Update video at http://www.cata.ca/catatv/SRED-update-Sept2010.html and in our September 2010 SR&ED Best Practice Education video at http://www.youtube.com/watch?v=YcnjczZhDjM&feature=related.
We highlighted the much narrower research orientation and inflexible documentation requirements established by the protocols, and we highlighted concerns we were hearing that the result would be a program much more focused on supporting research endeavours than on the experimental development projects conducted in the context of developing and improving processes and products in business settings. Historically, experimental development projects have made up the bulk of the SR&ED claims.
Call to Action – It’s Time to Advocate for an Immediate Solution
The Government needs to be encouraged to act now by those who are concerned. From what we are seeing in the CRA, it is clear that there is an impasse.
Specifically, we believe that the Minister of National Revenue, the Minister of Finance, and the Minister of Industry need to hear of your concerns, and why delay is unacceptable.
These Ministers need evidence of how drastically CRA practices have changed, how unreasonable these practices are in the context of normal business practices, and the immediacy of the impacts so that they can support finding an immediate solution.
We encourage you to write to these Ministers with your experiences. If you are concerned about creating problems for your companies with the CRA, ask that your letters not be shared with the CRA. Explain why.
We suggest that it is very important that you work through your other associations, national and local. You need to see that they understand the seriousness and urgency of the problems that the CRA is creating, and the need to promote the immediate implementation of a solution.
LinkedIn SR&ED Discussion Group
In September, CATA established a LinkedIn SR&ED Discussion Group to promote the discussion of what is happening in the SR&ED Program in order to:
Please consider joining the discussion...
- identify what best practices assist claimants;
- examine alternative ways to manage the program to return it to its intended purpose as an incentive program and make it more efficient; and
- identify what steps can promote improvements.