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The SR&ED program is a perennial target and scapegoat for economists seeking supposedly more efficient handling government funds. The problem with taking that stance is that invaluable research takes incredible patience, research for its own sake, and a visceral belief in progress. Trees take a lifetime to grow. However, John Lester, research fellow with the School of Public Policy at the University of Calgary, recommends SR&ED cutbacks:
“Based on these results, the prudent policy approach would be the scale back the amount of support provided to small business. The enhanced SR&ED credit should be reduced in line with the regular credit and additional support should be focused on innovative startups delivered through spending programs such as IRAP.”
His recommendations also include aligning SR&ED credit percentages for small businesses to those of medium and large ones. In absolute terms, that could make the difference between a major breakthrough and an unfinished experiment for a small company.
SR&ED is About Giving Small Ideas a Chance to Take Root and Flourish
What if, for example, Danish electronics engineer Bent Stumpe had not been given the time and funding to develop the first capacitive touch screens in 1972 by CERN? Don Stookey of Corning, a much smaller company some fifty years ago, invented what is known today as Gorilla Glass in 1962 – but it was a solution that didn’t find its problem until 2007. Today, former RIM co-CEO Mike Lazaridis is investing millions in new research towards a future in quantum computing, and I’m willing to believe there will be advances in humanity unfathomable to us today thanks to his efforts, which started in a garage and with his own personal savings.
IRAP and SR&ED: To Complement and not Usurp
IRAP has its own litany of benefits, of course, but inevitably funding becomes a far less meritocratic affair when the Government allocates more funding to fewer companies. To be fair, the government began doling out smaller funding amounts to a greater number of companies last year; but, ultimately this doesn’t compare to SR&ED. There is an order of magnitude of difference in terms of the support that SR&ED provides companies over IRAP. In our view, IRAP complements SR&ED, and it would be a mistake to try to invert this position. Even with SR&ED, companies are having a hard time hiring and maintaining talented engineers and developers in Canada. SR&ED is in many cases required in order for Canada to remain competitive on the world stage.
The fundamental difference between IRAP and SR&ED is that SR&ED allows much more in the way of experimentation and uncertainty, and as a result of this is more conducive to generating breakthroughs. As fellow garage–entrepreneur turned billionaire Steve Jobs once said:
“You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.”
SR&ED and the Hive Mind Advantage
If you do want to look at this in purely economic terms – numbers impervious to anticipating the true value of SR&ED investments – consider the trend towards decentralization and locality that has benefitted so many industries. Whether it’s massively parallel computing, private solar energy, the quantified self, micro transactional trading, open-source repositories and so much more, the SR&ED program ought to remain as beneficial as it can possibly be so there are a multitude of businesses – a Canadian hive mind, if you will.
Do you have any thoughts on SR&ED from the perspective of a small to medium enterprise?
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