The context for the letter below outlining industry concerns regarding SRED Consulting mechanism is survey work and research CATA is undertaking that explores the current structure and efficiency of the SR&ED tax credit program, evaluates what issues are important and what changes to consider to improve it. We are also obtaining information on how the program can be reshaped to provide SR&ED performers with the most effective and relevant system.
Date: September 5, 2006
The Honourable Carol Skelton
Minister of National Revenue and
Minister of Western Economic Diversification
The Canadian Advance Technology Alliance (CATAAlliance) is Canada’s leading voice of the IT sector. Our 400+ members and their concerns represent both the largest firms in the sector and emerging players throughout the country.
For more than twenty years, a key concern of the CATAAlliance has been the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program and its effective delivery by your officials. The SR&ED program is the key government support mechanism used by business in the IT sector and it is the preferred mechanism. To many emerging firms, the effective and timely delivery of the SR&ED incentives can be critical to their survival.
Over the years, the CATAAlliance has not only strongly advocated for improvements to the SR&ED program when they were required, but we have assisted your officials in developing a community consensus on appropriate interpretive policies for recognizing eligible development projects and how to document and support claims for SR&ED. The CATAAlliance pioneered joint training with the CRA on these polices across Canada.
At the most recent meeting of the Board of Directors of the CATAAlliance, a number of members brought to our attention their concerns about the CRA’s review of its approach to its advisory committees. Our members are very concerned that the review of CRA advisory committees appears to be taking place without discussions with stakeholder organizations such as the CATAAlliance. On behalf of our members, I would like to meet with you, with my Senior Director at your earliest convenience to better understand your thoughts on the kind of leadership model you need for this key incentive program.
A critical factor for the success of the SR&ED program is the community’s consensus on the policies that CRA applies. The policies must not only be consistent with the intent of Parliament, but they must also be effectively understood and accepted by the claimants for the SR&ED tax incentives.
In fact, jurisprudence supports the position that a consensus position of the community on policy interpretations of what is eligible is a very important factor in understanding the correct application of the law. Over the years, almost all effective policy developed to support the delivery of the SR&ED program has reflected the community’s consensus position. Major difficulties have occurred when this consensus had not been achieved.
Specifically, some of the key interpretive policies developed through community consensus include Information Circular IC 86-4 which is the starting point for recognizing SR&ED, extensions of IC 86-4 such as guidance for various sectors, including the Software Guidance developed by the CRA and industry through the CATAAlliance, guidance on recognizing experimental development, and the recent interpretive policies on recognizing experimental production which includes specific guidance relevant to the pulp and paper industry.
As you do your review of your advisory committees, we encourage you to recognize the unique needs of the SR&ED program for strong and effective input and leadership by the community and consensus-building led by the community. Your officials have suggested to us that simply collecting the commentary of the community is sufficient. However, long experience with the program shows that such an approach is not conducive to building the community involvement that is essential to working out and reaching consensus on the boundaries that are needed to effectively administer the SR&ED program. The CRA needs to have an effective mechanism to achieve transparent and objective community leadership in order to develop effective policy and achieve community acceptance.
Over the past twenty years or so, the CRA has used four different mechanisms for consulting with the community. The failure has occurred when the processes involved simply collecting commentary and advice through committees. Ultimately, in each case, a leadership model had to be found to deal with the disconnect that occurred between the CRA and the users of the program.
There has always been an issue with community involvement as co-leaders in policy development in the minds of some of CRA’s officials who seem to be concerned with a loss of control. Involving the community does not mean permitting the community to exercise undue influence over or control of the operations of the SR&ED program. Rather, community participation requires agreement on appropriate boundaries on where and how the community can be involved in ways which reinforce the government’s legislated policy objectives through community consensus on how these policies apply.
I believe that we all have a common interest in the success of the program.
John Reid, President