Stimulating business spending on research and development will ensure that Canada remains at the forefront of scientific capability, enhancing our ability to shape and improve our nation’s future. Over time, it can lead to higher productivity growth, economic growth and living standards.
The SR&ED (Scientific Research and Experimental Development) tax incentive program has encouraged investment in R&D and boosted profitability and cash flow. However, the program can be improved to maximize its effectiveness and impact.
SR&ED investment tax credits (ITCs) are only marginally effective for corporations that do not qualify for refundable ITCs, such as publicly-controlled corporations; non-resident controlled corporations; a combination of the above; and certain CCPCs due to restrictions on taxable income and taxable capital for the prior year, or by virtue of certain association rules. When ITCs are not fully refundable, they do not provide the critical assistance firms need to weather a sustained downturn. Instead, they are only available to these companies if they have taxes owing.
In the current economic environment, many companies wanting to continue R&D no longer have access to the credits because they are in a loss position.
“The problem is that the structure of the SR&ED tax credit rules is an all or nothing structure. Either one can use credits (through refundability for small CCPCs or against taxes payable for profitable companies) or one cannot.” (Source: Information Technology Association of Canada (ITAC). An Alternative for Extending Refundability of SR&ED Tax Credits. January 2007).
Winnipeg Chamber of Commerce Recommendations:
That the federal government:
1. Expand refundability of the SR&ED tax credit to all R&D performers
2. Offset SR&ED tax credits against a pre-tax levy, such as employer EI premiums
3. Consider expanding the ITC for collaborative R&D (i.e.- industry-industry, industry-university and industry-government). Continue to build linkages and relationships between the public and private sectors by fostering collaboration among university, college and government researchers
4. Implement a focused and sustained effort to encourage SMEs to enter the SR&ED tax incentive program. Continue to clarify and simplify forms and publications to facilitate access for small business and to reduce compliance costs
5. Review administrative procedures relating to the SR&ED program in other countries and adopt best practices
6. Continue to increase awareness of the SR&ED program both at home and abroad
Adopted by the Winnipeg Chamber of Commerce board of directors, June 2009