January 17, 2020

SR&ED Update, February 2020

Thirty plus years of evidence based advocacy, seeking effective support for the growth of Canada’s high-tech industries.

By Russ Roberts, PhD, Sr VP, Tax, Finance & Advocacy,
CATAAlliance

In my last conversation with the late John Reid last June, he was excited.  He saw that others were picking up CATA’s messages and amplifying on them as their own agendas – a remarkable legacy. 

Key to John’s reaction was the recognition by many in the community of the need for: 

  • support programs that give much better returns on Canada’s investment in start-ups and Canadian developed IP through government funded programs, superclusters, and research institutions; and 
  • an overhaul of the SR&ED program, including its management, to provide transparency and credits better targeted to effectively assist firms in focusing on advanced technological based growth strategies where there is the prospect of significant returns to the Canadian economy.   

Today, strong and evolving discussions in the media and advisory panels to various governments and their agencies are capturing growing attention.  

John and I discussed the community’s calls for reform of the business tax system.  Our discussion ranged from the need for legislative clarification of conflicted and unclear legislation to how tax reform can be better targeted to support innovation and growth here in Canada.  CATA has joined calls for a 21st Century Tax regime to be created by an independent tax commission: https://cata.ca/2019/21st-century-tax-commission/The challenge we saw was that a comprehensive tax reform effort not become so cumbersome that it would be guaranteed to fail, how not to entangle CATA’s community in the failure, and how to move forward a reluctant Ministry of Finance.  

We concluded that, given CATA’s focus on how best to support Canada’s innovative businesses, we needed to prioritize CATA’s asks to high impact tax initiatives and fixes that would support their growth as internationally competitive businesses.  The objective should be to increase their ability to better leverage Canadian IP, better innovate, and better grow businesses effectively here in Canada.  

ACTION ITEM:

Please share your ideas with CATA to cmalette@cata.ca  with Tax Reform as the subject.
Specifically, we would like to put together a list of tax reforms; and legislative clarifications and modifications to contribute to the dialogue on tax reform.  To do so, we need a short list of your thoughts on critical improvements to the tax system that will assist you in capitalizing on your firm’s innovations; and promote your firm’s growth as an internationally competitive, viable Canadian business.

Re: the Scientific Research and Experimental Development Tax Incentive Program (SR&ED program):

At this point, there seems to be a level of agreement that the Government needs to find ways to greatly improve the predictability and transparency of the program, including its management processes.  We believe that this is imperative if tax credits are to deliver to their full potential. In fact, the CRA is once again calling on the community for assistance in the design of an improved SR&ED management system – a useful first step.  

We think that the question should be whether an improved management system alone is enough.  That is, would simply administrative improvement without targeted tax credit reforms be sufficient? 

Specifically, there are calls for a major rethink of the credit system to provide better focused tax support for business innovation and growth.  For example, see: https://www.ic.gc.ca/eic/site/098.nsf/eng/00024.html and

Others are calling for improved IP regimes reflecting that Canadians are very good innovators and arguing that it should be the role of governments to figure out how best to help focus this creativity to the full benefit of Canada’s economy.  For example,  https://ca.finance.yahoo.com/news/balsillie-calls-bs-canadian-policymakers-lofty-innovation-claims-122908595.html  and https://www.theglobeandmail.com/business/article-business-leaders-warn-of-glaring-campaign-omission-lack-of-economic/

CATA is participating in the CRA exercise on how best to manage the SR&ED program and we will provide an update when we have additional information.  

Available for download:
Background: CATA & SR&ED