Is the SR&ED program drowning in negative press? Can it be saved?
SR&ED Education and Resources has been following news reports on the SR&ED tax credit program since before its inception in 1986, and have been gathering and reviewing these articles on our SR&ED in the Media page.
Recently, we at the InGenuity Group got an email from a reporter working on a story (or stories, perhaps) about the SR&ED tax credit and wanted to know more information on how it works. However, the reporter was looking into the “problems” with the tax credit, as you will see:
I was starting to look into the problems with the SRED tax credit and wanted to know if you knew of any Canadian companies in particular that are taking advantage of this credit? Or if there are any consulting companies in particular that are abusing the system?
What do others think of the negative press?
We have to admit that we are a bit tired of the demonization of consultants, if not the vilification of the SR&ED program in general. So we took to the SR&ED Canada group on LinkedIn to ask others for their opinions on alternate articles to be written, which led to an interesting discussion.
It seems that many appeared to be in favour of the SR&ED tax credit program, such as this individual:
Aside from the usual CRA interpretation issues and issues with documentation we all face, I think it’s worth mentioning that there are certain advantages in the SR&ED program being administered by CRA in that the policies are very stringent and that the “audit culture” of CRA is applied to what is a tax credit program. Therefore, the opportunities for fraud are mitigated as penalties are applied in accordance with the Income Tax Act and I think that claimants/preparers realize this when they attest to the (tax) claim. I don’t see fraud, but I do see issues of lack of education and misinformation as the qualification criteria (are) complex.
Another respondent added their opinion:
Currently, the government and the media don’t really seem to appreciate how powerful the program is at supporting existing businesses. It is a very effective “anti-brain drain” program. It helps businesses to take gambles that they wouldn’t otherwise take.
However, another person confided that there was no way to spin a positive narrative from the program:
Just remember that we’re all filling in our billing details now because of a Globe and Mail story of years ago. (Note: The respondent probably refers to a feature article written in 2012.) There’s no way to not have your feedback spun negatively. The SR&ED program keeps innovation alive at a lot of companies but that’s the part that never gets the headline — government waste is a far more sexy spin.
Does the SR&ED program deserve better press?
Not everyone thought that the SR&ED program, in its current state, was all good news. One respondent pointed out:
I believe that the current state of SR&ED policy is largely suited for purely scientific research and engineering advancements.
With the advent of the information revolution, I believe the program needs adjustments to accommodate the massive influx of software advancements in Canada.
Another suggested that the CRA has brought the negative publicity upon themselves, as Chartered Professional Accountants Canada admitted to there being “problematic administrative policies” at the CRA in a December 2014 PowerPoint presentation. This respondent noted problems raised with the SR&ED program go as far back as a June 1998 joint industry / government conference in Vancouver where former Canadian Revenue Minister Herb Dhaliwal committed to implementing new measures to the program.
And one other thought that the problem lies in the CRA tightening up eligibility requirements:
Companies using SR&ED are keeping highly skilled (workers) and manufacturing jobs in Canada. However, as the government has tightened eligibility requirements, a number of software clients have given up on Canadian programmers and are using Eastern European and Asian contractors (not eligible for SR&ED) with a guaranteed discount on fees (50% or more) rather than having to gamble that CRA will adjust their SR&ED claim.
As the responses listed above reflect, there is a wide range of opinions as to whether or not SR&ED has problems. We have also previously noted more positive articles in our SR&ED in the Media news summaries, however, these positive stories are few and far between among an influx of negativity garnered by the program since it was introduced.