BudgetConsultantsHistoryOpinionPoliticsSR&ED Updates and Changes

CCI Response to CRA Consultation March, 2024  – “SR&ED is a value statement of where we want to go as a country.”

“SR&ED is a value statement of where we want to go as a country” – CCI Response to CRA Consultation, March 2024. (Photo credit Markus Winkler via: Pexels.com)


     The Department of Finance published a new statement on January 31, 2024, “Government launches consultations to increase Canadian research and development and intellectual property retention“. In this statement, the Government of Canada announced that they have launched consultations on how to improve support for research and development, and how to create and retain intellectual property in Canada. This statement marks the beginning of the long-awaited review of the Scientific Research and Experimental Development (SR&ED) program. 

As Ben Bergen, President of the Canadian Council of Innovators (CCI) noted in a recent verbal interview with the BetaKit in their podcast on Canadian startup news and tech innovation, the Scientific Research and Experimental Development (SR&ED) tax credit is a nearly $4 billion program that services 15,000-20,000 businesses annually—that’s more than double the total clusters (which were downgraded from super clusters) commitment each year.1 For a federal government that has made a lot of promises with regards to driving innovation in Canada,2 the impact of making changes to such a program has the potential to be significant—IF changes are meaningful and not merely performative.

What is the Canadian Council of Innovators? The Canadian Council of Innovators (CCI) is a member-based organization reshaping how governments across Canada think about innovation policy, and supporting homegrown scale-ups to drive prosperity.3 They currently support and represent over 150 Canadian member companies, through networking opportunities, special events, education and perhaps most importantly, advocacy.


In defining the current issues CCI has with SR&ED it’s important to note what Bergen calls the “trust battery” that they and tax payers have with the current federal government – a government that first announced the review of SR&ED in the 2022 federal budget, and after continuous delays, failed to deliver on that promise for over two years. It comes as no surprise, then, that for Bergen and others (we would include our own firm in that group) we are approaching any conversation about improvements to SR&ED with some amount of skepticism.

That said, CCI’s main position is that the program is too complicated and needs to be simplified. They are concerned that research and development (R&D) dollars need to stay in Canada and IP needs to be incentivized to stay in Canada. As Bergen points out, it is difficult to know where exactly SR&ED dollars are flowing after they are distributed to the companies.

The specific recommendations the CCI is proposing are as follows:

1. “Require that the parent company of any firm applying for SR&ED qualify as a Canadian Controlled Private Corporation (CCPC) in order for its subsidiary to be eligible for SR&ED. Canadian branch plants of multinationals should not be eligible. This ensures that [intellectual property] IP developed using SR&ED funding is positioned to benefit Canada in the long term. This will also have the effect of focusing credits on SMEs where they are needed, as companies that will lose eligibility under this change are almost exclusively large multinational firms. It will also immediately make available almost $1B to support implementation of the required reforms and easily make the overhaul cost-neutral.”4

It’s a fair comment that preference should be given to Canadian-controlled companies, and it would be worth reconsidering whether Canadian branch plants of multinationals should be eligible for SR&ED Investment Tax Credits. It is unclear, however, how this will ensure that IP developed using SR&ED is positioned to benefit Canada in the long term – once SR&ED dollars are distributed, what those companies that receive the tax incentives choose to invest in (or sell their companies to) are entirely up to them. Ensuring the benefits target Canadian controlled groups is sensible, but this is already partially covered through the structuring of credits based on ownership (an enhanced, refundable rate for CCPCs and a lower, non-refundable rate for non-CCPCs). It’s unclear how the downstream benefits would be addressed through this recommendation.

We think this recommendation could be improved by adding a restriction such that if the companies are sold to international groups within a certain number of years (say five, for arguments’ sake), that the funding is then slated for repayment. That would be a step in the direction of ensuring the downstream benefits of SR&ED remain in Canada, but still not necessarily a guarantee.

CCI’s claim that this recommendation would free up almost $1 billion, thus resulting in cost-neutrality for the rest of their recommendations appears to be supported by data from The Logic;5 however, one of their sources of R&D spending is dated to 2017, so more recent data is needed to ensure the cost-neutrality presented.6

2. “Move to a default approval model where all submissions by eligible firms are approved provided the base documentation is present, similar to the income tax model, with a subset spot-checked for compliance annually. This removes the need for technical due diligence by non-technical CRA staff, reduces administrative overhead, and removes subjectivity from the approval process. Greater certainty that SR&ED claims will proceed will motivate healthy risk-taking by innovative Canadian firms.”7

Arguably, this would increase the cost of compliance. In 2008, the T661 forms were restructured to shorten the text length provided to the CRA (1,400 words), making this the shortest possible application form in Canada for projects that can sometimes exceed $1 million in expenditures. Further, reviews – a more detailed version of a spot-check – occur infrequently, sometimes 6-10 years between visits from the CRA. These visits are conducted by technical individuals, most of whom have graduate degrees in research. There are no “non-technical CRA staff” who conduct these visits and given their infrequency, it is arguably a much smaller administrative burden than other programs (such as IRAP, who require a lengthy application and quarterly reports).

The “greater certainty” can be obtained through several outreach programs provided by the CRA. Specifically, the CRA’s SR&ED Outreach Program offers some great services, including their webinars and even onsite visits for companies conducting R&D, as well as a Pre-Claim Consultation and SR&ED Services Visit.8 Alternatively, programs such as IRAP exist that also fund innovation, have a broader scope, and can pay out monthly – enhancing the funding for this program so it can target more groups would likely be preferable to reorganizing the SR&ED program.

For the history buffs in our network, it is also interesting to note a “no review” model was already attempted. The CRA has written about some of the challenges in their Evolution of the SR&ED Program – a historical perspective article.

3. “Simplify the SR&ED credit calculation to be a fixed percentage of the salary of employees conducting R&D, eliminate the direct method of SR&ED claims, and integrate SR&ED claims with the payroll tax submission system to reduce the management overhead for both applicant firms and administrators. Pay out credits monthly following the payroll tax submission to ensure that small companies are not limited by cashflow in their ability to conduct R&D. This also eliminates the need for dedicated SR&ED consultants and SR&ED-based lending, which currently takes anywhere from 15-30% of the value of the credit away from innovators.”9

It’s unclear why this is being suggested. Currently, if someone is working 100% of their time on R&D, the full cost of their salary is used to calculate the ITCs. Under this model, a smaller amount of their time would be claimed. It would be interesting to see the numbers side-by-side for this suggestion, as well as how this would work for individuals that spend only part of their year on R&D projects. Once again, it’s unclear how this would simplify the process. While the US has this model, and arguable it would simplify trying to track the time for the various individuals – even in the US this is not paid out monthly. Once again, there are already programs that fill the void for monthly payouts (ex. IRAP); it would be preferable to enhance their pool of funding before making sweeping and administratively uncertain changes to how the funds are distributed.

This, however, would not eliminate the need for SR&ED consultants. There are 29 different policies and guidelines on SR&ED listed on the CRA website that need to be observed and it’s not reasonable to expect a single in-house resource to know all these policies.10 Even SR&ED experts will argue over the nuances of the program; we have reviewed over 100 legal rulings about various aspects of the program. Smart business is not always about learning “how” to do something, but rather “who” is better positioned to get something done, thus freeing up company resources to do what they do best. Further, not all consultants charge contingency fees; there are many groups that work in a manner similar to accounting firms, either on a fixed-fee or hourly basis.

To put it another way, personal taxes should be simple enough for anyone to file; however, there are countless reasons why people pay to have someone assist them. So long as there is a SR&ED tax incentive program with so many policies (right down to how to classify water in the experimental process), the fundamental issue of “complexity” will not be addressed and experts in SR&ED will be required. Further, we believe that most advocacy to eliminate SR&ED consultants stems from experiencing bad SR&ED consultants – and like there are bad personal income tax prep professionals, there are bad SR&ED consultants; however, it’s a free market and company owners are encouraged to find ethical, professional firms. Read our managing director’s take on bad SR&ED consultants in her article Why I Hate SR&ED Consultants. We have also written previously about about the variety of firms and billing rates.

4. “Require that firms that have received SR&ED credits submit annual reports on the use of IP developed with the tax credit, including any downstream assignments, and that this requirement be inherited by any acquirer, assignee, or licensee of that IP, for a period of no less than 10 years. This provides a means for data collection on the long-term impact of SR&ED spending and a means to track the flow of patents and IP resulting from the credit. Make the aggregated, anonymized data public in an annual report and make evidence-based policy adjustments in response to findings.” 11

Once again, it’s unclear how this will lessen the administrative burden as it adds a new requirement. This also forces companies to use IP lawyers, who are not success based, which would drastically increase overhead costs throughout the year on non-technical work. We’re concerned this would not simplify or improve the program, but rather create the need for a new market of consultants that can do this work. Further, many firms are uncomfortable filing patents as this requires the disclosure of their work. Patent Rebel does an excellent job of outlining the pros and cons, including one key con: enforcement can be costly. Currently, the SR&ED program rewards proprietary knowledge generation, whether or not it is patented. In fact, it’s a key tenet of the program:

“The creation of new, or improvement of existing, materials, devices, products, or processes can be achieved without technological advancement. Also, novelty, innovation, uniqueness, feature enhancement, or increased functionality alone does not represent or establish technological advancement. Instead, it is how these attributes or features arise (that is, whether or not they arise through technological advancement) that is important.”12

Transparency and SR&ED

Throughout the recommendations and the discussions, there is an implication that SR&ED program does not align with known standards and that the program is not transparent. We disagree. Canada aligned the SR&ED program with an internationally recognized framework, published by the Organization for Economic Cooperation and Development (OECD). The Frascati ManualGuidelines for Collecting and Reporting Data on Research and Experimental Development” (2015) has clear language on how to identify, collect, and report on Research and Experimental development work. The language in the Income Tax Act as it relates to the three areas of research (basic, applied, and experimental) aligns with this framework. Statistics Canada also publishes a yearly report on R&D in Canada, the Canada Revenue Agency reports on the SR&ED program, and thousands upon thousands of pages of data are available discussing the SR&ED program via ATIPs (that anyone can request).13 So, it would seem to us that there is already a tremendous amount of transparency around the SR&ED program – just not what companies choose to do with the Investment Tax Credits once received. Given the government does not mandate how we use our personal tax refunds, we may want to approach how companies use their corporate tax refunds in the same manner.

On this much, we agree: the program is complex and sometimes unreliable. The CRA should continue their outreach programs and ensure that new Research and Technology Advisors interact clearly and timely with companies.  It is also worth revisiting how the tax credits are accessed by foreign multi-national companies, and asking whether it should subsidize the R&D of corporations such as Microsoft and (up until very recently) Huawei.14

Innovation vs. Research and Development 

We would like to draw attention to an important difference between “innovation” and R&D.

Research and experimental development is defined in the Frascati Manual as:

“Research and experimental development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge.15

By contrasts, innovation is defined in the Oslo Manual “Guidelines for Collecting, Reporting and Using Data on Innovation” (2018) as:

“Innovation is production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and the establishment of new management systems. It is both a process and an outcome.”16

Currently, the SR&ED program in Canada is an R&D program, not an innovation program. The CRA has carefully crafted their policies on an internationally recognized standard, based on the Frascati Manual (2015). It appears that the CCI – true to their name – are advocating for a change from R&D to an “innovation” program. While some frameworks exist, such as the Oslo Manual, this would represent an entirely new program, as opposed to a revisiting of an existing program. We would encourage them to continue lobbying for an innovation program that fills a necessary gap left by SR&ED and IRAP, but continue to promote the benefits of the current programs.


Overall, we agree with CCI about the need for ensuring that investments into R&D remain in Canada, which we’ve previously written about in our article TMX Lobbies for Small Public Companies Accessing SR&ED.  We also agree with simplifying and removing barriers to accessing the SR&ED program, especially for SMEs; however, it seems unclear to us how some of their recommendations would accomplish this objective, as they appear to inadvertently create more administrative overhead and/or a market for new consultants (IP reporting in addition to SR&ED consultants). Some recommendations already exist under other programs (such as IRAP), therefore enhancing these programs through additional, separate funding is likely preferable to modifying an existing program (SR&ED) and forcing companies to adapt. The most significant underlying challenge of the program – the number of complex policies, guidelines, and inconsistencies with reviews – is not addressed in CCI’s recommendations. We are aware one of the goals of CCI is to reduce or eliminate the need for consultants altogether – which is one of the foundational reasons we developed  SR&ED Education and Resources – but we believe this will be a natural outcome of the continued improvement of the SR&ED program through their current efforts.


Show 16 footnotes

  1. Soltys, D. (Host). (2024, March 3). How to fix SR&ED with CCI’s Ben Bergen (No. 361). In The BetaKit Podcast. The BetaKit Inc. https://betakit.com/how-to-fix-sred/
  2. Hemmadi, Murad; Balakrishman, Anita;  Reevely, David; Snyder, Jesse; Got, Jonathan; Leck, Sebastian (March 28, 2023) “Federal Budget 2023: What’s in it for the innovation economy.” The Logic. Retrieved March 21, 2024 from: https://thelogic.co/news/special-report/federal-budget-2023-whats-in-it-for-the-innovation-economy/
  3. United for Canada’s Prosperity. Retrieved March 21, 2024 from: https://www.canadianinnovators.org/#:~:text=Canada%27s%20future%20prosperity-,United%20for%20Canada%27s%20future%20prosperity,scale%2Dups%20to%20drive%20prosperity
  4. Briggs, Kyle. (2024, February 5) “An open response to the SR&ED consultation call by a Canadian innovator.” Retrieved March 21, 2024 from: https://www.caninnovate.ca/p/a-response-to-the-sred-consultation-call?utm_source=substack&utm_medium=email
  5. MacIntyre, Catherine (2018, October 15) “Shredding tax credits? Why Canada’s biggest R&D program may be funding the wrong innovation.” The Logic. Accessed March 21, 2024 from: https://thelogic.co/news/the-big-read/shredding-tax-credits-why-canadas-biggest-rd-program-may-be-funding-the-wrong-innovation/
  6. Canada’s Top 100 Corporate R&D Spenders 2017. Retrieved March 21, 2024 from: https://www.researchinfosource.com/pdf/CIL2017-Top%20100%20RandD%20List.pdf
  7. Briggs, Kyle. (2024, February 5) “An open response to the SR&ED consultation call by a Canadian innovator.” Retrieved March 21, 2024 from: https://www.caninnovate.ca/p/a-response-to-the-sred-consultation-call?utm_source=substack&utm_medium=email
  8. Government of Canada (2023, December 1). SR&ED Outreach Program. Accessed March 21, 2024 from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/sred-support-services/sred-outreach.html
  9. Briggs, Kyle. (2024, February 5) “An open response to the SR&ED consultation call by a Canadian innovator.” Retrieved March 21, 2024 from: https://www.caninnovate.ca/p/a-response-to-the-sred-consultation-call?utm_source=substack&utm_medium=email
  10. Government of Canada (2023, April 25) SR&ED Policies and Guidelines. Accessed March 21, 2024 from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/sred-policies-guidelines.html
  11. Briggs, Kyle. (2024, February 5) “An open response to the SR&ED consultation call by a Canadian innovator.” Retrieved March 21, 2024 from: https://www.caninnovate.ca/p/a-response-to-the-sred-consultation-call?utm_source=substack&utm_medium=email
  12. Government of Canada (2021, August 13). Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives. Accessed March 21, 2024 from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/sred-policies-guidelines/guidelines-eligibility-work-sred-tax-incentives.html
  13. Government of Canada (2023, March 1) “Completed Access to Information Requests.” Accessed March 25, 2024 from: https://open.canada.ca/en/search/ati?search_api_fulltext=SR%26ED&sort_by=year&sort_order=DESC
  14. Hainsworth, Jeremy (2020, January 13) “Special report: Canadian taxpayers, companies subsidizing Huawei research.” Business Intelligence for B.C. Accessed March 21, 2024 from: https://www.biv.com/news/asia-pacific/special-report-canadian-taxpayers-companies-subsidizing-huawei-research-8258623
  15. OECD (2015) “Frascati Manual 2015: Guidelines for Collecting and Reporting Data on Research and Experimental Development. The Measurement of Scientific, Technological and Innovation Activities.” Accessed March 21, 2024 from: https://www. oecd-ilibrary.org/docserver/9789264239012-en.pdf?expires=1650549718&id=id&accname=guest&checksum=FC4F 77B2B2063768E1BED8A71552644C.
  16. OECD (2018) “Oslo Manual 2018: Guidelines for Collecting, Reporting and Using Data on Innovation, 4th Edition.” Accessed March 21, 2024 from: https://www.oecd.org/innovation/oslo-manual-2018-9789264304604-en.htm

Leave a Reply