At SREDucation, we’re taking the time to document all of the changes that have occurred to the 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.
In 2004, the study “Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms” was published. The report analyzed the impact of Research & Development (R&D) tax credits—such as the Scientific Research & Experimental Development (SR&ED) tax credit—on innovation activities of Canadian firms. The study found that R&D tax credits have a positive impact on the firm’s decision to conduct R&D and increase innovation output of the recipient firms.
SR&ED Study Findings
In the study, the authors point out that Canada has one of the most generous R&D incentive programs in the world, noting the impact of the SR&ED tax credit.
“The programme was rated as the most important component in the system of government support of R&D followed by refundability of the federal credit,” they said, “while government grants and contracts received the lowest rating.”
Citing statistics from a 1998 Finance Canada study, the authors also point out the incredible growth of the program. Between 1988-1992, eligible SR&ED expenditures had grown “50 per cent from $4.5 billion in 1988 to $6.9 billion in 1992” for corporations and “by 100 per cent from $0.7 billion in 1988 to $1.4 billion in 1992” for smaller CCPCs.
Drawing SR&ED Conclusions
The study concluded that R&D tax credits—and SR&ED in particular—had “a positive impact on innovation output of the recipient firms.”
“Tax credit recipients realize a higher number of product innovations, as well as sales with such,” they said. “Consequently, we can conclude that firms conduct more R&D if they receive tax credits.”
While commercialization isn’t the end goal of SR&ED, the authors also noted that R&D innovations resulting from tax credits led to products the performed well in the Canadian market.
“As the sales with innovative products increase, it turns out that the induced increase in R&D inputs is translated to innovations which are positively evaluated by the market,” they said.
This article is based upon a report issued at the time: “Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms”.