Due May 27, 2024 – Department of Finance Launches Second Round of Consultations on SR&ED

Due May 27, 2024 – Department of Finance Launches Second Round of Consultations on SR&ED (Photo Credit: Andrea Piacquadio via Pexels.com)

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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 SR&ED including how to improve support for research and development, as well as how to create and retain intellectual property in Canada. The deadline for the initial consultation was April 15, 2024. It was later announced in an update on SR&ED (which we have outlined in our article CRA Announces Update on SR&ED Program, April 2024) that supplemental consultations would occur. This article looks at what is happening with round two of the Finance Department’s Consultation on SR&ED.

From the Finance Department’s website:

Budget 2024 announced an additional $600 million over four years starting in 2025-26, with $150 million per year ongoing, for future enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive program. To inform the delivery of this additional funding, the government is launching a second phase of consultations as it works to enhance the SR&ED program and target this additional funding to boost research and innovation.¹

What is unusual is that this second round of consultations was only announced at the end of April – and published on their website on April 25, 2024. The deadline to reply? May 27, 2024. Effectively, there are just over 30 days in this consultation process, or 21 working days, all of which fall during the busiest part of the year for corporate tax providers.

The first phase of the consultations, which, granted, was several years in the making, was announced in January of 2024, with a deadline of April 15, 2024. This gave stakeholders an already tight timeline for carefully considering and compiling meaningful responses to the very complex questions being asked.

While the tight turnaround for the second phase can be interpreted generously as the desire to affect change in a timely manner, a cynical view would be that there is no desire for meaningful feedback, that the end results are already decided, or at worst, a blatant attempt at limiting feedback altogether.

As of the publishing of this article, stakeholders have a week to submit responses.

We have included the questions from the Department of Finance website, below:

1. What are some of the challenges faced by research-and-development-performing small- and medium-sized Canadian public corporations when it comes to financing?
2. To avoid any potential disincentives to growth, would entrepreneurs favour a program with one single rate accessible to all, even it if means somewhat lower support for small Canadian-controlled private corporations?
3. How should the concept of “Canadian” public corporations be defined, should the government proceed with measures to improve access to the SR&ED program’s enhanced credit for Canadian public corporations?
4. The SR&ED program currently has rules to prevent the multiplication of the expenditure limit by Canadian-controlled private corporations with common control. If enhanced support were extended to public corporations, how should relationships among legal entities be delineated?
5. Current global initiatives rely on accounting concepts of relationship and control to determine whether entities are included in a large business corporate group. Should existing international practices of this sort be adapted for determining relations for public corporations in the context of the SR&ED program?
6. What is the optimal size-based metric (e.g., taxable capital employed in Canada, revenue) to phase out enhanced support for public corporations, including those in a corporate group?
7. How does refundability under the SR&ED program influence investment decisions and planning? To what degree would Canada become a more competitive location to undertake research and development (R&D), compared to other jurisdictions, if credits earned at the general rate were partially or fully refundable?
8. Would it be preferable that the government make the general rate refundable, but at a reduced rate? What would be an acceptable trade-off in this regard?
9. In your view, should SR&ED-eligible activity be broadened from the existing OECD definition of SR&ED, generally used by Canada and other countries offering R&D tax credits? If so, how would you propose to amend the current definition? Why would any additional activities warrant government support?
10. Can you provide specific examples of activity that you think should be eligible for the SR&ED program that are not currently eligible? Would such a change bring additional predictability to claimants?
11. How could the SR&ED program be enhanced to support businesses conducting R&D in the digital age, particularly in respect of software development and the emergence of artificial intelligence?
12. To what extent do businesses face financial challenges and trade-offs in protecting their intellectual property (IP) in Canada and abroad? Would it be appropriate for the government to provide additional support to these activities under the SR&ED program? If so, what would be a cost-effective approach?²

Responses to these questions are due May 27, 2024, and can be sent electronically to SRED-PB-RSDE-RPB@fin.gc.ca with “SR&ED Review” as the subject line.