SR&ED as a Tax Credit (1995)

October 4, 2012 SRED

Reference Article (>5 Years Old)

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At SREDucation, we’re taking the time to document all of the changes that have occurred to the SR&ED program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986. For a timeline of these events, check out the SR&ED Tax Credit page on Facebook. Stay current with the program by understanding the historical context.

In April 1995, Carleton University’s G. Bruce Doern (under contract to Industry Canada) wrote a paper that was intended to track SR&ED’s development as a tax credit over time. He conducted interviews with government officials who are involved with SR&ED, under the condition that none of them would be directly quoted in the paper. Additionally, he consulted the literature on SR&ED at the time as he wrote the report.

“This paper seeks to provide a clear understanding of how institutional variables affect the design of the original policy, its overall implementation and the level of compliance,” he wrote in Institutional Aspects of R&D Incentives: The Scientific Research and Experimental Development Tax Credit. A summary of a posted brief of his points is as follows:

SR&ED Background

At the time, SR&ED was worth $1 billion every year in tax credits. Doern stated that the program was established in 1986 partially because of some unspecified “difficulties” with an earlier version called the Scientific Research Tax Credit, which was based on flow-through credits.

“Under the SR&ED scheme, full refundability was provided to Canadian-controlled private corporations with taxable income of less than $200,000 on the credits earned on the first $2 million of qualifying current expenses,” he wrote.

“Credits earned by other categories of firms were only partially refundable. Further changes were made to the program and to its administration as examined below, including the loss of the partial refundability component.”

Institutional Restructuring for SR&ED

A great deal of the paper was intended to focus on “institutional restructuring” of the program, meaning the pros and cons of “having the primary organizational location of the program changed from a tax collecting portfolio where it is now located, to other portfolios.”

In particular, the paper would examine the mandates of several stakeholders with involved with SR&ED, including Revenue Canada, the Department of Finance, Industry Canada, the courts, R&D groups, firms, and accountants and lawyers.

It examined the following: