On April 19, 2021, the Liberal government Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland, released the Federal Budget 2021.
SR&ED in the Federal Budget – Prior Budgets
This is the first federal budget since 2019. The 2020 budget was not released due to the COVID-19 pandemic. The Government of Canada announced the release of the Federal Budget 2021 on March 23, 2021. The 2021 Federal Budget is a blueprint to recovery for Canada’s economy and to help it rebound stronger than before the pandemic. The entire budget can be viewed on the Department of Finance Canada’s page.
The last major change to SR&ED occurred in the 2019 budget when it proposed repealing the use of taxable income as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit. As a result, small CCPCs with taxable capital of up to $10 million will benefit from unreduced access to the enhanced refundable SR&ED credit regardless of their taxable income.
Innovation Support & Expanding IRAP – 2021
The 2021 Federal Budget focuses on helping the economy to recover from the effects of the COVID-19 pandemic, which is still impacting us daily. While the 2021 Federal Budget does not address SR&ED specifically, it does discuss innovation and the importance of supporting innovation in Canada.
Connecting People and Businesses and Unleashing Innovation: Budget 2021
supports investments in infrastructure, including public transit and trade infrastructure, and supports firms, particularly SMEs, in innovating and investing in technology so that they grow and take advantage of the new opportunities. Efforts to boost the productivity of Canadian workers will pay long-term dividends. For instance, working to reduce Canada’s productivity gap with the U.S. by just one tenth could raise real GDP by 3 per cent over the next two decades, boosting real GDP growth by 0.15 p.p. per year over that period.1
Budget 2021 proposes to provide $250 million over three years, starting in 2021-22, to Innovation, Science and Economic Development Canada for an initiative to scale-up proven industry-led, third-party delivered approaches to upskill and redeploy workers to meet the needs of growing industries.2
Additionally, the budget expands the Industrial Research Assistance Program (IRAP), which often helps those conducting SR&ED.
Expanding the Industrial Research Assistance Program
Canada’s most innovative small and medium-sized businesses have an outsized impact on job creation and economic growth. But they need access to expertise and capital to grow. For several decades, the National Research Council’s Industrial Research Assistance Program has provided expertise and capital and has helped business to scale up.
Budget 2021 proposes to provide $500 million over five years, starting in 2021-22, and $100 million per year ongoing, to expand the Industrial Research Assistance Program to support up to 2,500 additional innovative small and medium-sized firms.3
What is the impact?
Supporting innovators will help those who wish to conduct SR&ED. Additionally, Budget 2021 focuses on hiring workers to help the economy recover.
Budget 2021 is a plan to make targeted investments in Canada’s businesses so they can hire and train Canada’s workers, who will then have more money to spend, spurring our recovery and growing an economy with more opportunities for everyone. It is a plan to help our businesses, especially small businesses, adopt new technologies. And it is a plan to invest in Canadian innovation, for long-term growth.4
Budget 2021 proposes to introduce the new Canada Recovery Hiring Program for eligible employers that continue to experience qualifying declines in revenues relative to before the pandemic. The proposed subsidy would offset a portion of the extra costs employers take on as they reopen, either by increasing wages or hours worked, or hiring more staff. This support would only be available for active employees and will be available
from June 6 to November 20, 2021. Eligible employers would claim the higher of the Canada Emergency Wage Subsidy or the new proposed subsidy. The aim is to make it as easy as possible for businesses to hire new workers as the economy reopens.5
To fuel the recovery, jobs, and growth, the government is launching the Canada Digital Adoption Program, which will create thousands of jobs for young Canadians and help as many as 160,000 small and medium-sized businesses adopt new digital technologies.6
These programs are designed to help small and medium-sized businesses grow and thrive during the pandemic and post-pandemic recovery.
Enhancing the Canada Small Business Financing Program
Small businesses need access to financing in order to invest in people and innovation, and to have the space to operate and grow. But many small businesses are facing financing challenges, especially Canada’s innovative, entrepreneurial start-ups that are built on intellectual property and other intangibles that could be the next world-changing ideas.
Helping Canadian Businesses Grow and Succeed 135
To make sure small business and independent entrepreneurs can access the capital they need to recover, innovate, and grow in the long-term:
Budget 2021 proposes to improve the Canada Small Business Financing Program through amendments to the Canada Small Business Financing Act and its regulations. These proposed amendments are projected to increase annual financing by $560 million, supporting approximately 2,900 additional small businesses. They include:
– Expanding loan class eligibility to include lending against intellectual property and start-up assets and expenses.
– Increasing the maximum loan amount from $350,000 to $500,000 and extending the loan coverage period from 10 to 15 years for equipment and leasehold improvements.
– Expanding borrower eligibility to include non-profit and charitable social enterprises.
– Introducing a new line of credit product to help with liquidity and cover short-term working capital needs.7
What Does This Mean?
While SR&ED was not a topic of the 2021 Federal Budget, many of the initiatives and programs will help those applying for SR&ED. Many of these programs are (and will be) considered government assistance which must be included in your SR&ED investment tax credit (ITC) application. Government assistance does decrease the overall SR&ED ITC but receiving government assistance and SR&ED ITC is worthwhile. Please see our post Government Support Doesn’t Mean Less Government Funding for more information on why utilizing government assistance is beneficial even though the overall ITC may be lower.
For analysis of previous budgets please see our articles: SR&ED in the Federal Budget: A Minor Change With A Major Impact (2019) and SR&ED In Federal Budgets (Summary).