What to Expect for SR&ED in the Federal Budget (2019)
Mark your calendars and save the date – Minister Morneau has announced that the new Federal Budget will be tabled on March 19, 2019.
What should we expect for SR&ED in the Federal Budget?
According to the Minister’s office, the upcoming budget will continue the evolution and support of a sustainable middle class, increase employment rates and bolster the Canada Pension Plan.1 Given that this budget is being unveiled in an election year we don’t expect significant changes in established programs such as the SR&ED, although it is possible that some changes may come to directly funded programs. For example, last year the Federal Government unveiled four flagship platforms to streamline funds:
- Industrial Research Assistance Program 
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- Strategic Innovation Fund 
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- Canadian Trade Commissioner Service
- Regional development agencies
These four could easily see targeted support for additional growth in 2019.
What else happened last year?
In 2018 the budget was titled Equality + Growth – A Strong Middle Class!2 As the title suggests, the primary focus of this budget was on Canadian citizens, particularly working families and how to encourage their success, retain a solid and reliable workforce and support workers through to retirement. Our initial reaction to the budget was encapsulated in a blog post published on budget day – February 27, 2018, which incidentally was the earliest a budget had been tabled since 2014. We remarked on some carry forward in the 2018 budget from the 2017 budget relating to R&D and the promotion of Canadian innovation. In fact, as we wrote in a blog post published in May 2018 innovation was the key catchphrase in the 2018 budget – the word or its derivative was used over 250 times in the budget text alone!
What does innovation even mean?
According to Merriam Webster, innovation is defined as:
Innovation:
The Oslo Manual for measuring innovation defines four types of innovation:
- Product innovation: A good or service that is new or significantly improved. This includes significant improvements in technical specifications, components, and materials, software in the product, user-friendliness or other functional characteristics.
- Process innovation: A new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.
- Marketing innovation: A new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.
- Organisational innovation:Â A new organisational method in business practices, workplace organisation or external relations.4
In relation to the 2018 budget, the various mentions of innovation correlate either with organizational, process or product innovation. These three types of innovation dovetail nicely with the four flagship programs mentioned above.
Organizational innovation is the improvement of business practices and workplace organization. The budget text states hiring more women to be innovative in that
Women bring unique perspectives and new ideas to their work, helping companies to innovate and solve problems in new ways.5
(This also promotes increased gender equity, another targeted budget goal).
Process Innovation in relation to the budget is focused on how the existing programs are delivered. Concerted efforts are described streamlining processes for greater accessibility and usability, therefore increasing client/customer/consumer satisfaction.6
Finally, Product Innovation in the context of the 2018 Federal budget relates to maintaining and even augmenting existing support for business exports to increase Canada’s competitiveness in the global marketplace.7
What about SR&ED?
Even though it seemed like everything got innovated last year, SR&ED was not directly mentioned in the 2018 budget text at all. Instead, the government allocated funds towards the support of Canadian business and innovation with the creation of the flagship programs mentioned above; however, the main focus of these was to streamline work and enable effective performance evaluation of existing programs.
Therefore, in 2019 we believe that the status quo will be maintained in relation to the SR&ED program and it will be completely ignored. Why? Simply put, the SR&ED program remains one of the government’s largest supports for business R&D in the country, to the tune of $3BILLION in tax incentives to 20,000 claimants annually.8 As mentioned, it is an election year and major changes would not be well received by small businesses. Readers may recall the challenges faced in 2017 when the budget introduced changes to the tax code, presumably to affect the wealthy, but also affecting small businesses, which elicited a widespread negative response. Therefore, it could be reasonably predicted the government would like to please as many people as possible prior to the election, not antagonize a large block of vocal voters.
As mentioned in our 2018 budget evaluation, the government decided last year to implement some of the recommendations from the Naylor Report.9 In particular, focusing on the support of researchers and increasing the number of women in the scientific workforce. Small businesses have come to rely on SR&ED benefits as part of their base funding model and indicate that government benefits have a positive impact on the innovation economy.10
What’s Next?
There is no question that innovation and business development continues to grow in Canada, and that this sector should continue to benefit from Federal Government support. The renaming of Industry Canada to “Innovation, Science and Economic Development” in 2015 sent a strong message regarding the government’s commitment to ensuring Canada remains competitive in the technological and digital markets of today’s knowledge-based economy. This commitment remains constant today; therefore, we expect that support for the SR&ED program that plays such a key role in fostering R&D growth and development in the country will remain consistent in the 2019 budget document.