The creation of a new independent administrator will manage
tax incentives to ensure companies see more benefits.
Some technology-focused groups are calling for the creation of an independent administrator to help reform the innovation tax credit system in Canada (which includes the SR&ED tax credit). The proposed administrator would comprise of senior, independent leaders with private sector experience, computer scientists and technologists as well as business people and tax experts. One group, CATA Alliance, sent out a survey last year, and the results indicated that 85 to 90 percent of respondents strongly supported the creation of this new administrator.
Rather than being driven by performance measures of tax recovery, the goal would be to manage tax incentives to ensure the companies using them would see more benefits. The success of the administrator would be measured on how successful it is in establishing and refining programs that create a return on investment for Canadian companies taking advantage of tax credits
The Decline of SR&ED
This proposal stems from the fact that the values of SR&ED tax credits have fluctuated between $3.1 billion and $3.6 billion each year since their high of $4 billion in the 2007-08 and 2008-09 fiscal years. The cumulative decline is calculated to be about $4.1 billion (based on CRA reports to the Treasury Board). It seems that new, restrictive interpretive and administrative policies (such as the CRA taking a stronger enforcement role), as well as the reduction to the proxy amount and removal, have caused the decline.
To that end, groups such as CATA Alliance claim that the current government is putting too much focus and effort into creating new programs, while allowing the SR&ED to languish. They claim that today’s SR&ED program doesn’t reflect what was created in 1986 and reviewed in the decades immediately following it.
An Independent Working Group
As part of its call to establish a new administrator, there are additional calls for the federal government to set up an independent working group to consult and develop details on how the administrator would function. There has also been discussion of a new “digital innovation” tax credit to help avoid disputes around how SR&ED applies in the computer sciences sector. (Although we argue that this may present problems due to the lack of consensus on what is considered “digital innovation.”)
Improving SR&ED Understanding
Rather than abandoning SR&ED or trying to develop a new “digital innovation” tax credit, the CRA should instead focus on improving their outreach and knowledge regarding the existing program. A better understanding of how to effectively apply and communicate with the CRA may improve the tax credit administration overall – and not require getting rid of the current SR&ED tax credit completely.