SR&ED Report: The Big and Small of Tax Support in Canada (2012)
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At SR&ED Education and Resources, we’re taking the time to document all the changes that have occurred to the Scientific Research & Experimental Development (SR&ED) program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986. Stay current with the program by understanding the historical context.
In 2012, the University of Calgary published a report entitled The Big and Small of Tax Support in Canada.1 The document “analyzes the state of tax subsidies for R&D both pre- and post-budget , and at both the federal and provincial level.” The author places heavy emphasis on the policy changes enacted to the SR&ED tax credit program during that fiscal year.
Budget 2012 and SR&ED
The paper describes that with all of the R&D spending changes announced in Budget 2012 being implemented by 2014, the importance of the SR&ED program will decrease in relation to direct funding initiatives.
“While tax subsidies to R&D in Canada remain high (as will become evident below),” he says, “the budget marks a moderate shift away from indirect tax-delivered support for R&D to direct support by way of government grants and spending.”
The author notes that Budget 2012 signaled a distinct adjustment in how the federal government chooses to allocate R&D spending.
“These direct expenditures for the most part benefit small firms,” he says. “On balance, when the changes are fully phased in, total R&D support declines, while that for smaller firms increases slightly.”
SR&ED Big and Small Conclusions
The document goes on to ask an important question: While tailoring the SR&ED program toward smaller businesses is positive in theory, will it work in practice?
“Given the clear policy decision on the part of the federal government to shift government support for R&D away from large firms towards small firms,” he asks, “an obvious question is whether this is justifiable from an economic point of view.”
Additionally, the author ascertains that in order to streamline R&D funding in Canada, the government will have to examine its “patchwork” approach to allocation.
“It is fair to say that Canada is a veritable patchwork of tax incentives for R&D,” he says. “This variation encourages the inefficient allocation of R&D across provinces and sectors and, again, between large and small businesses.”
This article is based on a SR&ED document at the time: The Big and Small of Tax Support in Canada (2012) 2