SR&ED seems to be a tax incentive that people love to hate. It’s no real secret among those in the community that SR&ED is a highly contentious tax credit, but why is there such continuous debate over the program?
SR&ED has a long history of back-and-forth discussion or outright criticisms over the changing policies, administration and review practices that govern this multi-billion dollar Canadian tax incentive. Prominent newspapers and media outlets such as The Globe & Mail and CBC are particularly fond of launching scathing criticisms against the program– sometimes based only on the opinions of a single, potentially biased source.
IMPORTANT: Just because you read something in the news doesn’t mean it’s the whole truth! Be sure to use your own judgement and question the ‘facts’ of each article.
- SageCrowd, Ogden Pond, and alleged corporate crime, 2019
- Ottawa ‘bending over backward’ for foreign tech giants at the expense of homegrown stars, insiders say, 2019
- What’s in the 2019 federal budget for Ottawa, 2019
- Why Canada saw a 60% increase in foreign direct investment last year, 2019
- Innovation Energy: Oilsands step up to take on clean tech, 2019
- How R&D subsidies can hurt commercialization, 2019
- Ontario businesses concerned about government review of R&D Tax Credits, 2019
- Spurring growth in Canada’s life sciences sector, 2019
- The impact of mergers or acquisitions on SR&ED tax credits, 2017
- A better way for government to help ‘pick’ tech winners, 2017
- Make automation key to Canada’s economy; Embracing innovation is the best way to create new jobs, Wal van Lierop writes, 2017
- Vancouver electric carmaker delivers first vehicle, 2017
- Ottawa tightens screws on R&D incentive program, 2017
- As Liberals tout ‘innovation agenda,’ CRA keeps scaling back SR&ED credits: CATA, 2017
- Don’t Take Government Research Tax Credits For Granted, 2016
- Feds ‘clawed back’ $4.2B in SR&ED credits, Ottawa-based tech group says, 2016
- Where did Innovation Nation go? 2016
- No one wants to talk about it, but Canada’s R&D programs are failing, 2016
- Canada’s R&D tax credit doesn’t pass the test for evidence-based policy, 2016
- ‘Same-old’ innovation policies won’t do: Editorial, 2016
- A federal focus on innovation, 2016
- Generous Business Loans Come with R&D Tax Crackdown, 2015
- To boost productivity, Canada needs to focus on innovation, 2015
- Canada’s R&D tax breaks can’t replace strategic innovation policy, 2015
- Canada shows a “disturbing” decline in innovation and R&D, 2015
- Don’t miss out on these valuable R&D tax credits, especially in the digital sector, 2015
- The research challenge Canada faces, 2015
- Mission Critical; How changing government R&D incentives can impact our ability to compete, 2013
- Change is coming- Capital assets, tax credits, and SR&ED, 2013
- Ottawa moves to streamline R&D tax-credit program, 2013
- Two tax credits entrepreneurs can’t afford to ignore, 2013
- For Canada, it’s crucial to get it right on innovation policy, 2013
- Why cut innovation?; Flaherty wrong to slash key research tax credit, 2012
- Document the evolution of your invention; Only unique work receives SR&ED credit, 2012
- One Tax Credit Not to be Ignored, 2012
- Startup paradise is real – just don’t go searching for it in Canada: Small business owners keep eyes in the rear view mirror, 2012
- SR&ED and the law of unintended consequences, 2012
- Worry grants may stifle innovation, 2012
- Fate of R&D funding a nail-biter for small business, 2012
- Ernst & Young insight: Changes to SR&ED tax credit impact entrepreneurs and innovation, 2012
- R&D tax credit changes under fire, 2012
- Sweeping changes proposed for R&D programs, 2012
- Can Ottawa spark innovation? It hasn’t yet, 2012
- Ineffective R&D Funding System Faces Overhaul, 2012
- Transformative changes to R&D funding model to be revealed over next year, 2012
- A glaring need to determine what’s legitimate R&D, 2012
- Stephen Harper’s innovation challenge: Canada falls behind its rivals in R&D: Biotech sector backs the idea of flow-through shares, 2012
- Harper signals Canada’s looming R&D revamp, 2012
- The School of Public Policy Releases Report Calling for Fundamental Changes to Budgeting of Tax Breaks: Billions of dollars in tax expenditures escape effective scrutiny, 2012
- Innovation needed on a flawed R&D incentive scheme, 2012
- Tories seek to spur corporate R&D spending with new budget, 2012
- What will happen to SR&ED contingency fees, 2012
- Harper vision ignores Ontario, 2012
- Putting development back into R&D, 2012
- Study urges drastic cuts to federal R&D tax breaks, 2011
- A Chance to Fix Our Broken R&D Model, 2011
- Canada’s R&D funding system ‘unnecessarily complicated,’ panel finds, 2011
- Setting a course for innovation success, 2011
- Harper Hints at R&D Tax Break Overhaul, 2011
- R&D tax scheme too rich, government panel finds: Report, 2011
- Wait for government grants slows hiring, 2011
- A Grant Dump That Smothers Innovation, 2011
- Dubious Claims Diminish R&D Tax Credit, 2011
- Abuse of R&D tax credit a case of the same old, same old, 2011
- Flawed R&D Scheme Costs Taxpayers Billions, 2011
- Cash in on government help to build a better mouse trap, 2011
- Handbacks, not handouts, 2011
- Tech Coalition Warns Takeover Spree is Nigh, 2007
- Lender reluctance said to retard innovation, 2002
- Tips help maximize benefit from SR&ED tax incentive programs, 2002
- The boondoggle continues, 2000
- R&D tax breaks are not wasteful – they’re essential, 2000
- MPs question R&D tax credits: Committee bluntly asks whether government should seek other methods, 2000
- Tech community jumps to defend R&D tax breaks, 2000
- $5-billion in R&D tax credits bogged down in Ottawa, 2000
- Firms may get $2 billion tax windfall, 2000
- Rules are complex for R&D tax incentives, 1999
- Use subsidies to encourage high tech, 1998
- New rules on R&D credits seen as hard on small firms, 1997
- Ottawa speeds up R&D claims, 1997
- Making exceptions to the rule; Business frowns on handouts, but not all of them 1996,
- Technology called key to future, 1996
- Banks fear being left out of R&D benefits, 1996
- Backlog of R&D claims grows, 1995
- Banks ask millions in R&D credits, 1994
- Misuse threatens R&D, firms say, 1994
- R&D tax credit a fiasco waiting to happen, 1994
- You don’t need a laboratory to do R&D, 1994
- Canada’s future demands some business subsidies, 1994
- Ottawa powerless as firms told how to reap R&D tax credits, 1994
- Tories Tinker With Income Tax Act, 1993
- ‘Technology Doctors’ Give Firms Shot Of Expertise, 1993
- Canadian firms are sitting on millions of dollars in unclaimed R&D tax credits, 1993
- Spending on research is money well spent – No other investment returns as certainly as does that in R&D, 1993
- Tax credit changes to plug $230 million into research, 1992
- Canada loses R&D race, study shows, 1991
- Canada’s R&D lagging despite tax credits, 1990
- Canada skimps on R&D spending, 1990
- Software group urges firms to seek R & D tax credits, 1988
- Let’s set corporate tax to support research, 1988
- Buildings are no longer eligible for R&D tax credits, 1987
- Canada on sidelines so far in high-tech race, 1987
- Tax reform plans seen discouraging critical research, 1987
- How Wilson’s tax reform plan undercuts high-tech industries, 1987
- R and D regulations held threat to industry, 1986
- Tax help on the way for the R&D, 1984
- Revenue Canada takes steps to plug R and D loophole, 1984
- Firms still draining revenue through R and D credit, 1984
- Mitel issues R and D credits, 1983
- Have questions about criticisms of the SR&ED program? Share your thoughts by commenting below, or adding to the conversation on our LinkedIn group, Facebook page or Twitter.
Alberta Canola farmers eligible for 2019 Tax Credit
January 27, 2020. DORI MODNEY Lethbridge News Now
Alberta growers have options during tax time. Those who do not request a refund of their check off in the current system will be eligible to apply for SR&ED tax credits for 2019.
The check off is a levy system by which growers contribute $1.00 per tonne on all Alberta Canola sold in the province. The funds are used to maintain the Canola Producers Commission, which promotes Canola research, advocacy and farmers’ success.
The tax rate for Canola producers is 23.69% , which represents the amount of the levy which was invested in SR&ED eligible projects for the year. Growers can claim that percetage back at tax time and apply it to current taxes owing, claim it as a refund, carry it forward to offset future taxes owing or similarly carry it back to reduce previous year’s owing (up to three).
Those who opt not to leverage those amounts can instead apply for SR&ED tax credits if they have a research project making them eligible to do so.
Modney, Dori (January 27, 2020.) Alberta Canola farmers eligible for 2019 tax credit. Lethbridge News Now (Accessed: January 29, 2020) Retrieved from https://lethbridgenewsnow.com/2020/01/27/alberta-canola-farmers-eligible-for-2019-tax-credit/
Big tech fish migrating to ‘small pond’ Victoria
January 24, 2020. TYLER ORTON Business in Vancouver
A number of tech companies are attracted to establishing their headquarters in Victoria for a variety of reasons, the SR&ED tax credit program among them. Victoria also offers an excellent geographical location, near to major airports and not far from Seattle’s major tech sector. An advantage in Victoria over Seattle is the lack of huge American talent – poaching firms such as Amazon and Microsoft.
Victoria also offers a smoother immigration process compared to Seattle, as the US border has not been as open to immigration as Canada’s more progressive stance. Attracting talent can be difficult but offering new hires the opportunity to live in a beautiful coastal city with welcoming tax incentives for the tech sector can sweeten the pot.
Victoria is also smaller than some of the major players in the tech sector, which allows new enterprises to stand out and make their mark with minimal competition. The majority of tech companies that are opening are not direct competitors, which contributes to a feeling of community building as opposed to establishing a rivalry.
What remains to be seen is how many big fish Victoria’s “small pond” can accommodate.
Orton, Tyler (January 24, 2020.) Big Tech Fish Migrating to Small Pond Victoria. Business in Vancouver (Accessed: January 25, 2020) Retrieved from https://www.westerninvestor.com/news/british-columbia/big-tech-fish-migrating-to-small-pond-victoria-1.24060664
Alberta’s technology incentive losses could be BC’s gain, 2020
January 7, 2020. TYLER ORTON Business in Vancouver
This article illustrates the pain and uncertainty entrepreneurial researchers face when making the decision about where to base their start-ups. While often enticed by the different tax credit incentives available in any given province it is worthwhile to consider other factors when making the final decision on where to base operations. Governments often change power and when they do, newly elected officials often opt to make changes to tax programs.
In the not so distant past Vancouver specifically, but BC, in general, was considered an expensive option for small business start-ups. In fact, the Mayor of Calgary visited the city of Vancouver in 2018 to entice companies to set up shop in Alberta, citing their superior tax credit programs. Fast forward to the fall of 2019, the sweeping changes implemented by the new United Conservative Party of Alberta signalled the beginning of the end for that province’s developing tech sector.
The new United Party cut funding for four significant tax incentives, the relatively new 25% interactive media tax credit, the Alberta Investment Tax Credit, the Capital Investment Tax Credit and the Scientific Research and Experimental Development program (SR&ED). Will Alberta’s loss be BC’s gain? BC’s interactive digital media tax credit is only at 17.5% compared to Alberta’s former 25%. Alberta’s recent tax credit changes weigh the odds a lot more favourably in BC’s direction.
While only time will tell what exactly the impact will be on the R&D capabilities of these two provinces, at least the BC tech sector can breathe a slight sigh of relief at the recent boost the Alberta government has given them over their competitors.
Orton, Tyler (January 7, 2020.) Alberta’s technology incentive losses could be BC’s gain. Business in Vancouver (Accessed: January 10, 2020) Retrieved from https://www.westerninvestor.com/news/alberta/alberta-s-technology-incentive-losses-could-be-b-c-s-gain-1.24047499
January 15, 2019. TIM BOUSQUET Halifax Examiner
This article was less about SR&ED and more alleged corporate crime. The author describes an alleged diversion of funds out of an organization that received government funding, including SR&ED tax credits. It discusses how any similar tax incentive funding program can attract opportunists and some of the steps the CRA has taken to minimize these situations in the future.
There are three main themes stemming from this article detailing the case of BeneFACT vs. SageCrowd.
Theme 1 – “Innovation” is an area the government and agencies want to support, but true innovation is often obscured by jargon and buzzwords. In 2013 SageCrowd was working to develop the “SageCrowd Collaborative Learning Platform,” which was to be used as a training tool. The information about the tool itself is light and the explanation given is filled with jargon and buzzwords. SageCrowd was able to obtain a total of $850,000 in investment funding from ACOA for the development of its training platform. SageCrowd then hired BeneFACT for two contracts to help them navigate the SR&ED claims process in 2014 and 2015. The author could not confirm whether SageCrowd was successful in securing SR&ED funding, however.
Theme 2 – Any large program will attract opportunists. There are seven passages quoted from the CRA webpage that detail changes to the SR&ED program in an effort to limit abuses to the system, which the author chooses to interpret as “a chronology of a bureaucracy dealing with constant fraud.”
Rather than portray these changes as showing evidence that the government is committed to improving the ever-evolving application process, the author does not provide any context or explanation for the excerpts chosen, other than to hyperbolically state “It’s mind-boggling inane that we give tax breaks to companies shilling the work of “life coaches” preaching mumbo jumbo.”
Theme 3 – White-collar crime is not prosecuted as strongly as petty crime. When it became clear that the company was not going to be successful the four directors/officers began diverting funds and dissolving the company in order to avoid their contract debt. BeneFACT’s lawsuit is against Ogden Pond Technology Group, who were investors in SageCrowd.
Bosquet, Tim (January 15, 2019.) SageCrowd, Ogden Pond, and alleged corporate crime. Halifax Examiner (Accessed: September 27, 2019) Retrieved from: https://www.halifaxexaminer.ca/featured/sagecrowd-ogden-pond-and-alleged-corporate-crime/#2.%20SageCrowd,%C2%A0Ogden%20Pond,%20and%20alleged%20corporate%20crime
February 7, 2019. JESSE SNYDER The Financial Post
According to the author of this article, the Canadian government is not showing enough support for Canadian technology firms, preferring to partner with larger US corporations like Facebook and Amazon. In fact, in a recent Shared Services Canada (SSC) procurement bid, a stipulation that bidding firms had “to have completed at least five prior data transfer jobs worth $10 million or more” meant that almost no Canadian firms were eligible to enter the bidding process.
In an attempt to preserve Canadian technology in Canada, Jim Balsillie (of Research in Motion fame), founded the Council for Canadian Innovators. Their goal is to lobby the government to introduce policies that will protect Canadian technology firms and allow them to thrive and be competitive, both at home and globally. Mainly concerned with intellectual property rights, one of their mandates is to stop large, US-based firms like Amazon and Google from establishing tech-branches in Canada. In this way, any IP that is developed in this country can stay at home and does not becomes US property. Canada can then benefit from the profit of any of the resulting products.
Some Canadian technology companies who are suffering from a lack of local government attention have embraced the welcome extended by other nations. In this article, the example of SOTI Inc., a private sector company involved in the development of mobility and the internet of things technologies. In the early stages of their start-up their CEO, Carl Rodrigues, was visited by the Prime Minister of Ireland, who detailed the various advantages and tax incentives the company could enjoy should they create a base and jobs in that country. As Rodrigues states “It’s an incredible honour to have the head of a country visit your operations, show an interest in your company, and talk to you one-on-one about the kinds of policies and supports he can offer you. I don’t want to leave Canada, this is where I want to grow my company. But it’s hard when all these countries are throwing incentives in your face.”
One of the steps the government can take to show support for Canadian tech companies would be to ban their foreign counterparts’ access to the SR&ED tax credit. Federally funding scholarships such as NSERC and SSHRC are only available to Canadians, maybe it is time to make the same true for SR&ED?
This article points to several ways in which Canadian tech companies lack support from the federal government. While it is good that programs like SR&ED tax credits exist, if the government continues to prioritize larger, foreign tech giants over homegrown Canadian start-up and mid-size firms we do not have a chance at retaining and improving our tech sector. Other foreign nations are too interested in what we have to offer and soon our key talent will be enticed to take the very attractive bait being offered. It will be the brain drain all over again, this time on a global scale.
Snyder, Jesse (February 7, 2019.) Ottawa is ‘bending over backward’ for foreign tech giants at the expense of homegrown stars, insiders say. Financial Post (Accessed: September 27, 2019) Retrieved from: https://business.financialpost.com/technology/domestic-tech-firms-warn-ottawa-is-ignoring-its-own-as-it-embraces-foreign-giants
March 20, 2019. CRAIG LORD Ottawa Business Journal
This article provides an overview of federal budget 2019’s impact on the city of Ottawa. While the focus of federal funding for the city was on infrastructure, particularly inter-provincial crossings between Ottawa and Gatineau, there was also mention of affordable housing and skills training credits. The removal of the income threshold that prevented smaller companies from applying for the enhanced SR&ED credit was seen as an improvement over previous budgets and a step that will benefit the city of Ottawa. By improving the support available to small firms, encouraging their establishment in the city and enabling them to ramp up more quickly, Ottawa’s tech sector will enjoy a competitive edge.
Lord, Craig (March 20, 2019.) What’s in the federal budget for Ottawa. Ottawa Business Journal (Accessed: September 26, 2019) Retrieved from: https://obj.ca/article/whats-2019-federal-budget-ottawa
May 22, 2019. IAN MCKAY The Globe & Mail
The purpose of this article is not only to highlight the strides Canada is making to support R&D talent in the country but also to mention the fact that in the global spectrum Canada is finally punching above its weight class in terms of our ability to attract foreign investment. Whether or not we continue to be able to do so remains in question.
The author of this opinion, Ian McKay is the CEO of Invest in Canada, an organization that facilitates connections between industry, community partners, and all levels of government to assist interested international stakeholders in expanding their business interests in Canada. In his opinion, Canada is improving its business relationships with other countries but we are not yet “out of the woods” when it comes to continued foreign direct investment (FDI).
According to Statistics Canada FDI saw major increases across the board in 2018. There are many factors that contribute to this achievement, not least of them how well we compare as a country in the global marketplace. Not only have we increased our exposure to FDIs, but we have also decreased our reliance on US investments, which in the “too many eggs in one basket” scenario is a good thing.
McKay points to the SR&ED tax credit as a key component of Canada’s success in the competitive global technology environment. He suggests that in addition to having excellent educational facilities to train upcoming researchers, the reduction to the amount of taxable income required to apply for the SR&ED tax credits indicates the government’s willingness to provide a welcoming environment for R&D innovation in the country.
McKay, Ian (May 22, 2019.) Why Canada saw a 60% increase in foreign direct investment last year. The Globe and Mail (Accessed: September 26, 2019) Retrieved from: https://www.theglobeandmail.com/business/commentary/article-why-canada-saw-a-60-increase-in-foreign-direct-investment-last-year/
July 9, 2019. GEOFFREY MORGAN Windsor Star
This article highlights and quantifies examples of investments currently being made by the oil industry to reduce their environmental impact and the challenges faced by companies when seeking assistance to help support their clean-tech initiatives – many of which could have an impact worldwide.
According to the author, the oil industry is one of the largest spenders on clean technology in Canada with over $1.4billion spent annually on the search for clean technology and environmentally safe production methods. Scientists in Canada’s oil and gas industry are constantly working on ways to extract crude oil while reducing the negative environmental impact. They have researched efforts minimizing the amount of water used – which will result in dry oil sands tailings and eliminating new tailings ponds to allowing faster remediation – as well as other initiatives such as the use of a small amount of solvent (usually butane), to reduce the amount of steam going into production wells. Not only does this method reduce the need for steam, but it also increases oil extraction and reduces greenhouse gas emissions.
Despite the obvious research behind these initiatives, one of the major roadblocks reported by oil sands executives is the difficulty in getting SR&ED credit claims approved by the CRA. The uncertainty or lack of assurance that claims will be approved as submitted makes SR&ED funding somewhat unreliable, which means it cannot be factored in as an absolute when costing major clean-tech initiatives.
Morgan, Geoffrey (July 9, 2019.) Innovation Energy: Oilsands step up to take on clean tech. Windsor Star (Accessed: September 9, 2019) Retrieved from: https://windsorstar.com/feature/innovation-energy-oilsands-step-up-to-take-on-clean-tech-challenge/wcm/2d364ae4-dad9-410f-bbfa-6123cb8c763c
August 7, 2019. JOHN LESTER The Globe & Mail
Senior Research Associate at the Centre for the Study of Living Standards and an Executive Fellow with The School of Public Policy at the University of Calgary, John Lester is a former federal government economist who writes on public policy issues. He wrote this article in response to the federal government’s innovation policy report, a mostly negative commentary on Canada’s innovation performance. It should be noted that this report does not even mention SR&ED by name, which Lester finds “remarkable.” His article suggests that rather than expand funding to a wider pool of potential applicants it would make more sense to be strategic. Looking at the desired outputs of the organizations and assessing how much of an impact those outputs will have in improving the lives of Canadians makes better sense than divvying up funding based on size/taxable income.
Federal government investments for R&D has slowly been increasing over the past several years. Lester suggests that the government should be more judicious in determining how best to allocate R&D funds to maximize the benefits, not just for the businesses themselves, but for Canadians and Canada as a whole.
As announced in the Federal Budget released in March 2019, if you are a small Canadian Controlled Private Corporation (CCPC) with taxable capital of up to $10 million you can now apply for enhanced SR&ED tax credits, no matter what your taxable income. This change in the 2019 budget allows increased support for small and medium-sized firms as they scale up. Overall it was viewed as a positive, albeit surprising change (as in the past most of the budget changes were focused on reducing the SR&ED program disbursements). However, according to Lester, expanding the capacity of possible applicants is not necessarily the best idea.
Using a calculation that measures the “spillover” benefit, Lester is proposing a sliding scale of available tax credit that would differ between large and small firms. While his sliding scale favours the larger corporations who he believes to have a greater positive impact overall, Lester’s calculation does consider the burden of filing tax returns, applying for support/grants and other barriers that are typically faced more by smaller firms. In addition, he argues that leveraging the SR&ED credit in conjunction with the IRAP subsidy would further benefit the smaller firms while still allowing the larger firms adequate space in the funding landscape.
Lester, John (August 7, 2019.) How R&D subsidies can hurt commercialization. Globe and Mail (Accessed: September 26, 2019) Retrieved from: https://www.theglobeandmail.com/business/commentary/article-how-rd-subsidies-can-hurt-commercialization/
October 2, 2019. BRENDA BOUW The Globe and Mail
This article presents the effects changes to funding programs could have on small to medium size companies located in Ontario.
The federal government recently implemented changes allowing small to medium corporations greater access to SR&ED tax credit funding. By repealing the use of taxable income as a factor in determining a CCPC’s annual expenditure limit smaller CCPCs with taxable capital of up to $10M became eligible to apply for SR&ED credits. In Ontario, corporations of this size are also eligible to claim the 8% Ontario Innovation Tax Credit (OITC) and the 3.5% Ontario Research and Development Tax Credit (ORDTC), alongside the 35% SR&ED credit for the same expenditures. However, this funding landscape was too good to last as the provincial government began to pay attention to the additional funding available and began to make plans to reduce their provincial contributions “The Ontario budget tabled earlier this month says the province will examine the Ontario Innovation Tax Credit (OITC) “as well as other R&D tax incentives.”
A reduction of this nature is not without precedent. In 2016 the OITC was reduced from 10% to 8% and the ORDTC moved down a point from 4.5% to 3.5%. (In fact, we were the first to write about these cuts to R&D funding in Ontario at that time!) What prompted the provincial government to look at another potential reduction just three years after the last one? It seems they became very interested in the opinion of John Lester, executive fellow at UCalgary’s School of Public Policy and a former government economist.
Lester is of the opinion that funding smaller corporations with additional tax credits to facilitate scaling and competitiveness with larger corporations does a disservice to the pure R&D being conducted.
“Mr. Lester says a more generous subsidy for R&D performed by small firms would be justified if it generated more benefits for society than R&D performed by larger firms, but his research shows that’s not the case. In fact, they may generate less.’
Researchers and company executives of those small and medium-sized corporations are, unsurprisingly, not in agreement with Lester’s opinion. They feel that a reduction in provincial funding would make their organizations less competitive inter-provincially and would further make them question the value of doing business in Ontario. If the attraction were strong enough, they may even consider relocation to a province where the granting possibilities were more favourable.
This article details the current funding landscape in Ontario, at both the provincial and federal levels. An excellent description of the potential impact of funding changes and the pros and cons of those changes for small to medium-sized businesses is offered. It remains to be seen whether the Ontario government will decide to implement decisions based on the opinions of a former government economist, now with the University of Calgary School of Public Policy, who believes small to medium businesses do not adequately contribute to R&D innovation to warrant additional funding.
Bouw, Brenda (October 2, 2019.) Ontario businesses concerned about government review of R&D Tax Credits. The Globe and Mail (Accessed: October 10, 2019) Retrieved from: https://www.theglobeandmail.com/
October 1, 2018. AUGUSTA DWYER The Globe and Mail
This very short article illustrates seven ways new businesses can ensure that they remain compliant with applicable tax regulations. It explains the various deductibles, what to look out for in terms of allowable claims, and how to separate personal from business expenses. It gives some practical advice like being aware of deadlines and keeping accurate records. SR&ED is mentioned in a section titled ‘Learn about tax breaks, grants and deferrals.’ There it explains, in limited detail, what is required in order to make an SR&ED claim.
This article is useful for any prospective or new business owners who want to be prepared for tax season. It offers practical advice and some definite thinking points that can be used to spark further investigation and inform deeper research.
Dwyer, Augusta (October 1, 2019.) The tax man cometh for small businesses, too. How to be ready. The Globe and Mail (Accessed: September 27, 2019) Retrieved from: https://www.theglobeandmail.com/business/article-the-tax-man-cometh-for-small-businesses-too-how-to-be-ready/
November 16, 2018. JESSE SNYDER Financial Post
This article points to a lack of overall planning for the optimum allocation of R&D funding initiatives within Canada. There are several different programs mentioned but many of them appear to overlap in their funding targets, meaning the same organizations are receiving funding Rather than striving towards a particular goal, as a grant funding machine Canada is a band-wagon jumper, eager to throw money at the next newest trend without first outlining strategic goals.
Many of the opinions in this article can be attributed to Anthony Lacavera, author of “How We Can Win: And What Happens to Us and Our Country if We Don’t” an article about Canadian innovation policy. Lacavera states that the SR&ED program is in desperate need of an overhaul. In his opinion, small businesses that are successful at leveraging the tax credit simply use it to stay afloat. Rather than scaling up and becoming more successful, or failing and shutting down, small businesses are able to tread water thanks to SR&ED investment tax credits. This is more harmful than helpful as it results in a greater number of ho-hum organizations at the expense of a smaller number of standouts.
Lacavera states that the second problem with funding programs is the administrative burden they put on applicants. The process is difficult, onerous and often requires the assistance of a consultant just to manage and understand the process. If an innovative research team is forced to spend time and/or money on securing funding it takes the focus away from product development and enhancement.
Finally, in the opinion of Dan Breznitz, the Munk Chair of Innovation, at the University of Toronto, the Canadian government should be funding more R&D and ensuring that Canadian companies are conducting R&D more often. “. . . any time there’s a hot new trend, something new and shiny, we spend a lot of money on it. And we spend almost no time looking at how to turn this into an industry.” Breznitz is of the opinion that if the country’s innovative space expanded, it would increase the likelihood that the new developments will follow, benefiting Canada and Canadians.
This article identified several popular grants and tax credits available to Canadians, including SR&ED, Industrial Research Assistance Program (IRAP) and the Strategic Innovation Fund (SIF). It also highlighted a perceived lack of focus and planning on how best to strategically allocate those funds.
Snyder, Jesse (November 16, 2018.) ‘Canadian style’ innovation strategy has to stop being nice and start picking winners. Financial Post (Accessed: September 27, 2019) Retrieved from: https://business.financialpost.com/technology/canadian-style-innovation-strategy-has-to-stop-being-nice-and-start-picking-winners
November 27, 2018. BRENDA BOUW The Globe and Mail
This article provides a summary of the various funding programs offered by the federal government. Many of these programs are underutilized either because the application process is daunting, or simply because people are not aware that these funding streams exist. Primarily focused on job and training grants, the SR&ED investment tax credit is briefly mentioned as being a “popular program” in the technology and innovation industry.
Bouw, Brenda (November 27, 2018.) Government grants to small business – a.k.a. free money – go unused. The Globe and Mail (Accessed: September 27, 2019) Retrieved from: https://www.theglobeandmail.com/business/article-government-grants-to-small-business-aka-free-money-go-unused/
January 10, 2017. Kegham Redjebian, Guest Contributor. Ottawa Business Journal.
In this article, Redjebian highlights the issues related to SR&ED that may arise during a merger or acquisition. Redjebian begins by stating that there has been “a notable increase in the number of acquisitions of Canadian companies due to the opportunity created by the weakness of the Canadian dollar. Many of these acquisitions concern corporations that carry Scientific Research and Experimental Development (SR&ED) tax credits on their balance sheets.” Redjebian states that “SR&ED tax credits get reflected in the purchase price from a historical as well as prospective value” as the tax credits can be claimed on projects up to 18 months after their completion and therefore could be valuable to a company acquiring or merging with another. However, Redjebian emphasizes that SR&ED tax credits are not a given: “[SR&ED] credits can represent a risk for the purchaser if they do not materialize due to a tax authority review that challenges the claim and results in downward adjustments.”
Redjebian highlights that if a company is acquired by a non-CCPC (Canadian Controlled Private Corporation) it will no longer be eligible for the “35 percent and 30 percent respectively for the federal and Québec [SR&ED tax credits].” Further, Redjebian warns that when companies merge they may be affected by “the ceiling of $3 million on eligible expenditures that entitles the company to the enhanced rates [as they] would apply to the combined entities and result in the gradual reduction of the overall tax recovery rates.”
Redjebian lists three more SR&ED-related consequences of mergers and acquisitions including that “an acquisition may create a substantially shortened fiscal period, the small business deduction that entitles the company to pay a lower corporate tax on the credits will be pro-rated on the shortened period, thus potentially exposing the SR&ED tax credits to the higher corporate tax rate.” Additionally, Redjebian warns “de facto loss of control due to a clause in the LOI [Letter of Intent] could forfeit the right of the target CCPC from being entitled to the enhanced SR&ED tax recovery rates from date of acceptance of the LOI.” Redjebian concludes by emphasizing the importance of due diligence in a merger or acquisition and highlights that this due diligence should “also extend to the SR&ED tax credits, especially where the tax credits are material to the balance sheet of the target company.”
Redjebian, K. (January 10, 2017.) The impact of mergers or acquisitions on SR&ED tax credits. Ottawa Business Journal Online. (Accessed: September 5, 2017.) Retrieved from: http://www.obj.ca/article/impact-mergers-or-acquisitions-sred-tax-credits.
June 6, 2017. David Ross, Guest Contributor. Globe and Mail.
In this article, Ross discusses the Canadian government’s 2017 innovation initiatives, including SR&ED ($4-billion), the Industrial Research Assistance Program (IRAP) ($175-million) and the Innovation Superclusters Initiative (ISI) ($950-million). Ottawa introduced ISI in 2017 to “choose and support the development of specific technologies where Canada can win globally,” through encouraging companies to establish “superclusters” with start-ups and research institutions to develop marketable ideas. IRAP uses advisors to provide “grants to companies with good technology ideas and a high likelihood of successfully bringing them to market.” Ross highlights that these stand in contrast to the SR&ED program, where businesses can claim SR&ED tax credits “regardless of a proven market need or path to market.” While Ross admits that IRAP and ISI are “great programs” he notes, “they do have a feel of a planned economy rather than free market, with government ultimately choosing where the money goes” whereas “no venture capitalists would hand out money to start-ups without a proven business plan;” whereas he suggests this is what the SR&ED program does.
Ross highlights that SR&ED “decreases the cash returned to companies as they grow or become mildly profitable” and argues that this leads to “an enormous number of tiny start-ups, a declining number of mid-sized Canadian tech companies and very few Canadian tech giants.” However, Ross believes that Canada does not have “an innovation problem,” instead “a commercialization of innovation problem.” Ross suggests perhaps “[Canada] should be redirecting some … funding to mid-market winners with proven track records that are reinvesting in R&D rather than endless start-ups” as mid-market companies have “proven business plans with proven paths to export markets.” Ross notes, “when start-ups transition into medium-sized companies, the SR&ED cash rebates plunge and the search for alternative funding begins.” He suggests this hunt for funding leads to these businesses being “almost always sold to larger U.S. companies,” becoming “R&D outposts” while most other jobs go to “the United States in addition to the financial rewards.”
Ross concludes that Canada should do more to encourage “mid-sized companies to scale and compete on the global stage” and ensure that SR&ED is not cut drastically once a start-up grows, instead “decreasing the [drop in funding] in proportion to company exports” could be an “easy yet powerful mechanism to make this happen.”
Ross, D. (June 6, 2017.) A better way for government to help ‘pick’ tech winners. Globe and Mail Online. (Accessed: June 8, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/a-better-way-for-government-to-help-pick-tech-winners/article35218289/?ref=http://www.theglobeandmail.com&.
February 6, 2017. Walter Van Lierop, Guest Contributor. Vancouver Sun.
This article highlights the importance of technology in redesigning Canada’s “innovation ecosystem.” Lierop highlights discussions held at the World Economic Forum in Davos, Switzerland in 2017, including “ways to mitigate the inequalities automation will produce.” Lierop suggests Canada could “build [automation] technology ourselves and thereby create new jobs to replace the old” and later the article highlights countries that have begun “investing in robotics” such as China, as the country is “aware that countries with cheaper labour will otherwise steal its lunch.”
Lierop suggests that the SR&ED program be “modi[fied]” to “spur an innovation ecosystem that taps into Canada’s strengths” by giving the “biggest tax breaks and subsidies to startups that have the most potential to scale and stimulate other sectors of the economy.” Lierop uses the example that “in B.C., we’d prioritize startups in industrial innovation given their ability to serve resource extraction operations nearby” and later emphasizes this point to cover Canada’s primary exports and suggests Canada “becomes a global exporter of industrial technology.”
Van Lierop, W. (February 6, 2017.) Make automation key to Canada’s economy; Embracing innovation is the best way to create new jobs, Wal van Lierop writes. Vancouver Sun Online. (Accessed: June 13, 2017.) Retrieved from: http://vancouversun.com/opinion/opinion-canadas-economy-can-thrive-in-automated-future.
June 27, 2017. Tyler Orton. Business in Vancouver
In this article, Orton examines the production of electronic vehicles (EVs) by companies in Vancouver and what significance earmarking funding from the provincial government would have on supplying more EVs.
Orton quotes Leona Green, one of the owners of Greens and Beans (a local deli in New Westminster), as Green had paid $2,000 two years earlier as a deposit on an EV. Green stated, “two years was too long […] they really do need to start mass-producing [EVs] somewhere.” In the article, Jerry Kroll (who at the time of writing was the CEO of Electra Meccanica (EM) (makers of EVs in Vancouver) and who also ran under the BC Green Party in the 2017 provincial election) states that EM has a limited capacity (between “two and 10 vehicles per month”) however, it has “orders for 500 vehicles”.
Kroll and Bruce Sharpe, president at the time of writing of the Vancouver Electric Vehicle Association are critical of the government’s limited resources focussed on EVs. The article highlights that although the SR&ED tax credit and the “small-business venture capital tax credit” programs could be used for the research and development aspects of EVs, the “federal version of SR&ED does not offer targeted tax credits to business working in EVs.” Sharpe goes on to note that most of the risk-taking taken in order to develop EVs has been from private business: “If it wasn’t for […] Tesla and […] Nissan really going out on a limb and taking some big risks to develop [EVs], we probably wouldn’t have them today.”
Orton, T. (June 27, 2017.) Vancouver electric carmaker delivers first vehicle. Business in Vancouver Online. (Accessed: July 7, 2017.) Retrieved from: https://www.biv.com/article/2017/6/vancouver-electric-carmaker-delivers-first-vehicle/.
June 13, 2017. Brenda Bouw. Globe and Mail.
This article argues the Canada Revenue Agency (CRA) was “cracking down” on SR&ED tax credit claims. Bouw attributes a “drop in the volume of claims and the number of filers” from “30,500 and about $3.5-billion in credits in 2010-11” to “24,300 claims [… and] about $3.1-billion […] in 2014-15” due to the CRA becoming “more stringent with the [SR&ED] program in recent years.” Bouw quotes a “CRA spokesperson” who stated, “the 2012 federal budget made the SR&ED program ‘more cost-effective and less generous’,” and that “budget announcements, along with the ongoing compliance activities conducted by the CRA, may have affected the intake of [SR&ED] claims.”
This article suggests that “compliance activities” are an “administrative headache.” While Bouw quotes Markus Latzel (chief executive of a Toronto-based web-content management company) in stating that SR&ED is “not easy money,” Latzel also highlights that for some companies “SR&ED has been an incentive for the company to do more R&D to help it grow.”
Bouw, B. (June 13, 2017.) Ottawa tightens screws on R&D incentive program. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/small-business/sb-growth/ottawa-tightens-screws-on-rd-incentive-program/article35152620/?ref=http://www.theglobeandmail.com&.
July 31, 2017. Techopia Staff. Ottawa Business Journal.
This article features criticisms from CATA (the Canadian Advanced Technology Alliance) regarding the federal government’s “so-called “innovation agenda” as a strategy for boosting economic growth.” CATA claims that the government is “quietly chopping billions of dollars from [the SR&ED] program” and argue that the “superclusters” program* cannot replace SR&ED, which “is aimed at creating a broader tax and intellectual environment that supports innovation and growth.” The authors highlight the history of SR&ED program, and quote CATA research that states in 2008 and 2009 “the Canada Revenue Agency doled out more than $4 billion worth of tax credits under SR&ED […] before a government-commission report raised concerns about the growing cost of the program.” In 2009 and 2010 “tax assistance dropped 19.5 percent to $3.3 billion and has remained at these levels ever since.” This led CATA to argue that there has been a reduction in SR&ED tax credits of “$5.3 billion […] between 2009 and 2016.”
The authors quote the CRA as stating that this reduction was due to an increase in CRA spending on compliance as a result of “legislative changes [that] were made following a 2012 review to simplify the SR&ED program and make it more cost-effective” and emphasize that, prior to the changes being implemented, “aggressive positions [were] taken by claimants in their credit applications’ that included inflated expenditures.” The authors conclude that, while critics of the SR&ED program “say it spreads tax relief too thinly across too many companies, many of which will never grow to become industry leaders,” CATA “fears the government will ‘continue to quietly gut the SR&ED program and eventually declare that it’s not useful to the economy’ [and] instead, it wants the business community to help the government develop a better tax-based program.”
*There is more information on the Superclusters Initiative in our blog post here.
Techopia Staff. (July 31, 2017.) As Liberals tout ‘innovation agenda,’ CRA keeps scaling back SR&ED credits: CATA. Ottawa Business Journal Online. (Accessed: September 5, 2017.) Retrieved from: http://www.obj.ca/article/liberals-tout-innovation-agenda-cra-keeps-scaling-back-sred-credits-cata.
Don’t Take Government Research Tax Credits For Granted, 2016
October 26, 2016. Michael Bosdet, Guest Contributor. Alberta Oil.
This article examines the role of SR&ED’s in mergers and acquisitions (M&A). As companies believe they have no use for non-refundable tax credits, this potential source of funding is often overlooked.
What many organizations do not realize is that SR&ED Investment Tax Credits (ITCs) can be used post-acquisition, “provided the acquirer is a for-profit entity in the same or similar business”. This allows SR&ED claims to potentially exceed capital acquired from refundable ITCs as, “any non-refundable ITCs will increase valuation.”
Additionally, Bosdet states that filing an SR&ED claim can generate a “qualified expenditure pool” which can then be applied in a similar way to a non-capital loss pool. Amounts in the SR&ED pool can be carried forward indefinitely and can be used post-acquisition.
Bosdet, M. (October 26, 2016.) Don’t Take Government Research Tax Credits For Granted. Alberta Oil Online. (Accessed: June 7, 2017.) Retrieved from: https://www.albertaoilmagazine.com/2016/10/dont-take-government-research-tax-credits-granted/. (Note: this item is no longer available)
November 22, 2016. Peter Kovessy. Ottawa Business Journal.
Kovessy describes the latest Canadian Advanced Technology Alliance (CATA) report on federal SR&ED spending. CATA is a group currently lobbying for broad changes to the way that the SR&ED program is administered. They are seeking to have the SR&ED program be administered by an organization other than the CRA.
The article goes on to describe some of the most common criticisms of the SR&ED program by both supporters and critics: that the program is too complex, that too much of the funds are redirected towards consultants, and that it does not incentivize true innovation, rather, it incentivizes complying strictly with the CRA’S regulations.
Kovessy, P. (November 22, 2016.) Feds ‘clawed back’ $4.2B in SR&ED credits, Ottawa-based tech group says. Ottawa Business Journal Online. (Accessed: June 7, 2017.) Retrieved from: http://www.obj.ca/article/feds-clawed-back-42b-sred-credits-ottawa-based-tech-group-says.
August 9, 2016. Jeffrey Dale, Guest Contributor. Ottawa Business Journal.
This, article, by the same author as “No one wants to talk about it, but Canada’s R&D programs are failing” (above), and with a very similar thesis, sets out to answer the question: “What happened to Canadian innovation?” As many similar articles do, Dale looks at this question through the lens of three famously struggling or defunct Canadian innovators: Bombardier, BlackBerry, and Nortel. He sets up the argument that our research funding program is broken by describing the failures of all three as fundamental failures of R&D. He goes on to say that the problem with the Canadian innovation funding program is that it funds pure research more effectively than it funds market research.
Dale argues that the SR&ED program should be broken down into parts based on the business stage of the applicant. While his plan is vague, his argument seems to be towards direct funding or a program in which the government chooses which research areas should be funded.
Dale, J. (August 9, 2016.) Where did Innovation Nation go?. Ottawa Business Journal Online. (Accessed: June 7, 2017.) Retrieved from: http://www.obj.ca/article/opinion-where-did-innovation-nation-go-dale-examines-what-canada-needs-do-reclaim-its-place.
March 16, 2016. Jeffrey Dale, Guest Contributor. Globe and Mail.
This article directly attributes the strategic failures of three large Canadian businesses (Nortel, Blackberry, and Bombardier) to the fact that market research is not an eligible activity under the SR&ED program.
Dale also states that “research and development investment by governments is focused on peer-reviewed academic research that is not linked to any industrial strategy.”
He suggests that the kind of R&D encouraged by the SR&ED program is not the research necessary to help Canadian businesses succeed. According to Dale, the SR&ED program results in Canadian businesses allocating too many resources towards the incremental development of new technologies, and not enough on towards predicting and disrupting changing markets.
Dale, J. (March 16, 2016.) No one wants to talk about it, but Canada’s R&D programs are failing. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/no-one-wants-to-talk-about-it-but-canadas-rd-programs-are-failing/article29248703/?ref=http://www.theglobeandmail.com&.
August 9, 2016. Creso Sá. Globe and Mail.
Unlike many of the articles in this section, which attack the SR&ED program for its perceived complexity and potential for abuse, this article adds the idea that because it is an indirect funding source the SR&ED program is fundamentally ineffective.
Sá’s argument rests on correlations. He states that because Canada’s expenditures on indirect investment (such as the SR&ED program) are relatively higher than those of other developed countries, and because expenditures on R&D, proportional to GDP (Gross Domestic Product), have declined since the year 2000, the SR&ED program must be to blame. Sá also suggests that those companies who do receive SR&ED funding are not capable of innovating, because “only about a dozen firms have sizeable R&D budgets in Canada.”
Ultimately, Sá argues that an evidenced-based policy decision would be to abandon the SR&ED program and consider proposals brought forward by the Science Technology and Innovation Council and the Council of Canadian Academies.
Sá, C. (August 9, 2016.) Canada’s R&D tax credit doesn’t pass the test for evidence-based policy. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/canadas-rd-tax-credit-doesnt-pass-the-test-for-evidence-based-policy/article31313507/?ref=http://www.theglobeandmail.com&.
May 6, 2016. Mariana Mazzucato, Guest Contributor. Toronto Star.
In this article, Mazzucato argues that the Canadian government should invest more in research and development (R&D) initiatives in order for Canada to remain competitive. One way to encourage innovation in the Canadian economy, Mazzucato says, is for the government to “take the lead in promoting ground-breaking technology by championing areas like the transition to a clean, green economy.” Mazzucato highlights that Germany “take a similarly active approach” as to that of the U.S. government, these countries also spend “2.8 percent” (Germany) and “2.9 percent” (the U.S.) of GDP on R&D, whereas “Canada spends less than 1.7 percent.” In the article Mazzucato refers to the special Innovation edition of the Star and how the stories in this edition emphasize Canada’s innovation and suggests that the government should make “it easier for home-grown tech firms to scale up quickly; put protection of intellectual property at the centre of global trade negotiations; and [help] Canadian firms take their ideas from research labs to success in the marketplace.”
*Mazzucato makes no direct reference to SR&ED in the article, though does refer to “tax breaks aimed at getting companies to boost their spending on R&D.”
Mazzucato, M. (May 6, 2016.) ‘Same-old’ innovation policies won’t do: Editorial. Toronto Star Online. (Accessed: June 13, 2017.) Retrieved from: https://www.thestar.com/opinion/editorials/2016/05/06/same-old-innovation-policies-wont-do-editorial.html.
A federal focus on innovation, 2016
July 27, 2016. Sean Silcoff. Globe and Mail.
This article features an interview conducted by Silcoff with Navdeep Bains, Minister of Innovation, Science and Economic Development. The interview highlights the government’s plans regarding innovation, as Silcoff says, “to make up for decades of failed innovation policies, stagnant productivity and weak research-and-development spending by Corporate Canada.” Bains discusses the “innovation agenda consultation” held in June 2016 and emphasizes the importance of innovation being “in partnership with civil society, with academia, with business [and] with [Canada’s] international counterparts.” Bains also highlights how immigration affects innovation and Silcoff refers to Canadian “tech companies” who want “an approval process [for visas] that takes three weeks, not six to 12 months.” This leads to Bains and Silcoff discussing “a threeyear [sic] employer-led pilot program” and the “Venture Capital Action Plan” introduced by the Harper government. Silcoff later proposes, “many critics would do away with [the SR&ED] indirect funding program and replace it with targeted, direct spending” and asks what Bains’ “government plan to do.” In his answer, Bains highlights that “eighty-five percent of the tax policy that [Canada has] for benefiting R&D is indirect,” however emphasizes that government focus “is how come business isn’t investing more in R&D.”
Silcoff, S. (July 27, 2017.) A federal focus on innovation. Globe and Mail. pg. B2.
April 12, 2015. Barrie McKenna. Globe and Mail.
This article catalogues the strategies used by the Canada Revenue Agency (CRA) to reduce SR&ED spending since it peaked in 2008. The combination of 2012’s new regulations on qualified expenditures, as well as changing technical scrutiny from the CRA, resulted in (at the time of writing) 80 SR&ED related cases before the Tax Court of Canada.
McKenna draws a connection between these tactics and large direct loans being paid to companies as evidence of the Conservative government’s changing priorities. He interprets the increased appeals and court cases as supporting his long-held argument that Canadian businesses are too dependent on SR&ED tax credits.
McKenna, B. (April 12, 2015.) Generous Business Loans Come with R&D Tax Crackdown. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/generous-business-loans-come-with-rd-tax-credit-crackdown/article23890857/?ref=http://www.theglobeandmail.com&.
September 10, 2015. Daniel Muzyka and Glen Hodgson, Guest contributors. Globe and Mail.
In this article, Muzyka and Hodgson give “a series of primers” to accompany the Conference Board of Canada (of which, at the time of writing, they were CEO and vice-president of the board respectively) report on innovation, How Canada Performs.* The article initially details how productivity in Canada can be increased through, “directing our work efforts toward products and services that can be sold at a premium and have widespread markets,” as well as “ensuring that workplaces are well organized and managed, and that the equipment, technology and processes we use are going to make us most effective.” Additionally, the authors suggest “developing the appropriate skills and knowledge for the jobs we undertake and focusing those skills on delivering results for customers and clients.” The article then gives six “key policy levers” to “improving productivity and strengthening Canada’s innovation.” These “policy levers” include investing in “skills and life-long learning and renewal” and developing better trade relationships both globally and cross-provincially. Muzyka and Hodgson suggest increasing public spending on “necessary infrastructure, particularly in cities” and pursuing a “comprehensive pan-Canadian innovation strategy that promotes business investment and the business and entrepreneurial commercialization of [Canadian] ideas.” It is also suggested that Canada increases flexibility by eliminating “unnecessary barriers” and streamlining “regulatory and labour practices,” and finally “simplify and clarify the tax system to improve incentives and cut compliance costs and investment delays because of uncertainty.”**
*The report referred to in the article is the Conference Board of Canada’s How Canada Performs.
**It is unclear if these recommendations were adhered to or were successful as the information from the Conference Board of Canada website on innovation was last updated in September 2015, at the same time the article was written.
Hodgson, G. and Muzyka, D. (September 10, 2015.) To boost productivity, Canada needs to focus on innovation. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/to-boost-productivity-canada-needs-to-focus-on-innovation/article26283449/?ref=http://www.theglobeandmail.com&.
September 13, 2015. Dan Breznitz and David Wolfe, Guest Contributors, Globe and Mail.
In this article, Breznitz and Wolfe argue that tax incentives will not “create new industries, or spur the growth of high-potential sectors.” Breznitz and Wolfe are both co-directors at the Innovation Policy Lab at the Munk School of Global Affairs at the University of Toronto. The authors argue that because tax incentives “apply equally to all firms who meet the legal criteria, regardless of the relative size and age of the firm, the industrial sector in which it is located or the degree to which its products and services are marketed globally or largely sold in the domestic market,” the result is the incentives become “another subsidy to already established, but not-so-innovative companies.” They continue to argue that tax incentives “are of no help in spurring the growth of new companies aiming to create new products and services, since at the very stage of their growth, in which new companies need the most help, they rarely have profits, and hence, cannot make use of tax incentives.” The authors suggest, instead of tax incentives, Canada adopts “smart strategic innovation policies, including direct investments in key technologies and firms” as other countries have spent less on their innovation funding, but have “successfully spurred high-tech growth miracles [and] did it by spending much less than Canada currently does, but in a more strategic way.”
Breznitz, D. and Wolfe, D. (September 13, 2015.) Canada’s R&D tax breaks can’t replace strategic innovation policy. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://www.theglobeandmail.com/news/national/canadas-rd-tax-breaks-cant-replace-strategic-innovation-policy/article26349428/.
December 1, 2015. Peter Nowak. Canadian Business.
In this article Nowak discusses the report released by the Science, Technology and Innovation Council, State of the Nation.* The report, created during the Harper government but only released in 2015, suggests “a few courses of action” to improve innovation in Canada. These actions include encouraging firms’ to increase their “investment in innovation” and “redress[ing] the imbalance of direct and indirect government funding for business R&D, to provide greater direct support for high-risk, high-reward business R&D.” Additionally, the report recommends “embrac[ing] risk-taking,” increasing “higher education expenditures on R&D” and strategic investment to “[focus] government funds to build globally competitive critical mass in targeted areas.” These suggestions are intended to improve Canada’s “ranking in business expenditures on R&D” and its investment in information communications technologies.
*The report referred to in the article is State of the Nation by the Science, Technology and Innovation Council.
Nowak, P. (December 1, 2015.) Canada shows a “disturbing” decline in innovation and R&D. Canadian Business Online. (Accessed: October 5, 2017.) Retrieved from: http://www.canadianbusiness.com/innovation/canada-shows-a-disturbing-decline-in-innovation-and-rd/.
March 12, 2015. Bob Waterworth, Guest Contributor. Financial Post.
In this article, Bob Waterworth, a partner in “KPMG Enterprise’s Tax Incentives Practice in Toronto” highlights some of the tax credits available for companies conducting research and development (R&D) activities. While Waterworth does not specifically name SR&ED as one of these tax credits, he refers to “R&D tax credits” that can “reduce the cost of your R&D expenditures, such as labour, by as much as 70%” and that “costs can include everything from salaries and wages, materials, overhead costs and certain contract payments for R&D work,” which both refer to stipulations of the SR&ED tax credit.
Waterworth also highlights the “Ontario Interactive Digital Media Tax Credit” (OIDMTC) that could “help small startups […] grow” and lists the varying degrees of provincial tax credits available.
Waterworth concludes that paperwork and proper documentation should always be kept, lists other criteria of the SR&ED program, such as ensuring a claim is filed “within 18 months” and ends encouraging businesses to “check for R&D tax credits for any projects.”
Waterworth, B. (March 12, 2015.) Don’t miss out on these valuable R&D tax credits, especially in the digital sector. Financial Post Online. (Accessed: June 13, 2017.) Retrieved from: http://business.financialpost.com/entrepreneur/dont-miss-out-on-these-valuable-rd-tax-credits-especially-in-the-digital-sector.
November 27, 2015. Ivan Semeniuk, Globe and Mail.
In this article, Semeniuk discusses science’s role in the Canadian government’s policies and the Trudeau government’s strategy to improve Canada’s innovative and scientific standing in the world, from the perspective of Minister of Science, Kirsty Duncan. The article also discusses the State of the Nation 2014* report, commissioned by the Harper government but released under Trudeau by the Science, Technology and Innovation Council. Semeniuk references the reporting when stating that Canada’s “ability to translate […] science into business-led innovation and economic performance is clearly plummeting, to a degree the report’s authors call ‘disturbing.'” The article also features suggestions from Kennedy Stewart, the NDP’s science critic, who “has long advocated for a more developed science strategy” and believes “[Canada is] very far behind in investing in the knowledge economy and that’s going to take money and private-sector incentives.”
*The report referred to in the article is ‘State of the Nation’ by the Science, Technology and Innovation Council.
Semeniuk, I. (November 27, 2015.) The research challenge Canada faces. Globe and Mail Online. (Accessed: June 16, 2017.) Retrieved from: https://www.theglobeandmail.com/technology/science/the-research-challenge-canadafaces/article27507029/.
May 30, 2014. Shane Dingman. Globe and Mail.
This piece sets out to dispel some myths that uninformed businesspeople might have about the SR&ED tax credit program. Responding to a Wall Street Journal article* on entrepreneur Adam Adelman, who moved his startup Mighty Cast to Canada partially to take advantage of the SR&ED program, the article attempts to reign in some of the over-optimistic expectations it may have created.
The Wall Street Journal article describes the SR&ED tax credit as being a general business subsidy available to all startups, rather than something with rigid requirements for scientific research. Dingman talks to members of the Canadian business community to get a more accurate picture of how the SR&ED program works.
Picking up the themes of other recent articles on SR&ED, this one points out that the application process has become more difficult in recent years, with less overall spending by the CRA.
*The article referred to in this article is Canada Offers Mondo Incentives to Lure Tech Startups by Christopher Mims, published in the Wall Street Journal on May 26, 2014.
Dingman, S. (May 30, 2013.) Shredding Some Myths about Canada’s Tech Startup Subsidies. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: http://www.theglobeandmail.com/technology/business-technology/shredding-some-myths-about-canadas-tech-startup-subsidies/article18921138/.
August 23, 2014. Andrew Jackson. Broadbent Institute.
In this article, Jackson discusses Canada’s research and development (R&D) efforts in relation to other developed countries. Jackson references the Innovation Canada report by Thomas Jenkins, which suggests that direct funding, as opposed to tax credits, would be more beneficial to Canada’s R&D efforts.*
Jackson quotes the Jenkins report as stating, “studies have repeatedly documented that business innovation in Canada lags behind other highly developed countries” and attributes this to Canada’s R&D spend of “just 1.7% of GDP.” Jackson emphasizes this low spend by stating the United States and Germany spend “2.8% [… and] advanced economies average […] 2.4%.” Jackson also highlights the decline in the manufacturing industry, which accounted for “one half of all business spending on R&D.”
*It should be noted that Jackson is referencing a document (Innovation Canada, the report by Tom Jenkins) that was 3 years old, having been released in 2011, whereas this article was published in 2014.
Jackson, A. (August 23, 2014.) Tax credits are not the way to boost innovation. Broadbent Institute Online. (Accessed: June 20, 2017.) Retrieved from: https://www.theglobeandmail.com/report-on-business/economy/economic-insight/tax-credits-are-not-the-way-to-boost-innovation/article20141584/.
November 16, 2014. Barrie McKenna, Globe and Mail.
In response to a report by the Organization for Economic Co-operation and Development (OECD), McKenna discusses Canada’s place in the world as it relates to science and technology,. The report ranked Canada “12th in overall spending […] it invested less in R&D in 2012 ($21.8-billion U.S.) than it did in 2004 ($22.7-billion).” McKenna also highlights that Canada’s spending as a percentage of its GDP has also “been on a steady decline for more than a decade and now stands at 1.69 percent of GDP, well below the OECD average of 2.4 percent” and that Canada is “the only developed country [… that spends] more to acquire other peoples’ technology than the world buys from [Canada].” McKenna concludes by acknowledging that there has been a year’s delay in the government producing an innovation strategy and “expectations are low that the Conservatives will do anything ambitious, or costly, given the government’s determination to eliminate the budget deficit next year, while simultaneously delivering targeted tax breaks.”
McKenna, B. (November 16, 2014.) Canada is falling behind global leaders in R&D. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://www.theglobeandmail.com/report-on-business/economy/canada-falling-behind-in-research-and-development/article21605656/.
May 23, 2013. Denise Deveau. Financial Post.
In this article, Deveau examines the opinions, regarding the changes Ottawa made to research and development (R&D) funding, of Todd Tessier (CFO Recon Instruments), Lynda Leonard (senior vice president for Information Technology Association of Canada (ITAC)) and Michael Turner (vice-president of system strategies for Wesley Clover).
Tessier states “R&D is an integral part of the company’s DNA” and that, while they agree with the concept of moving to a “direct investment model,” Ottawa should remember that “SR&ED has also been a critical piece in helping businesses get off the ground and growing.” Deveau highlights two changes that could “play a role in the competitive abilities of Canadian companies,” which include; “the exclusion of capital expenditures from eligibility” and “the reduction of the credit rate from 20% to 15% for larger R&D based firms. Smaller businesses will continue to be eligible for the 35% tax credit.” Leonard appears more apprehensive of the change and states, “indirect investment is predictable. If you do R&D and it qualifies, you get the credit … with direct investing you will either qualify and get the support or you won’t” Leonard suggests that “because [direct investment is] a finite envelope of funding,” not all who apply will be able to benefit from it and goes on to state “the elimination of the capital expenditure credit could prove particularly detrimental for some businesses … especially in the information and communications technology sector.” Leonard believes the ineligibility of capital expenditure could also dissuade “multi-national R&D companies” from completing their R&D in Canada, which could “ultimately cause [Canada] to lose R&D jobs.”
The article concludes with the opinions of Turner who suggests that Ottawa’s shift towards venture capital “is almost all aimed at growth-stage companies trying to spread their wings to international markets” and that this “is a good thing.” Turner, however, encourages caution to be taken by Ottawa to implement the changes so as to not “damage certain aspects of Canada’s knowledge sector or lead to huge changes for big companies in capital-intensive industries.”
Deveau, D. (May 23, 2013.) Mission Critical; How changing government R&D incentives can impact our ability to compete. Financial Post Online. (Accessed: June 13, 2017.) Retrieved from: http://business.financialpost.com/executive/mission-critical-how-changing-government-rd-incentives-can-impact-our-ability-to-compete.
April 9, 2013. Rona Birenbaum, Guest Contributor. Toronto Star.
This article highlights the changes to the SR&ED tax credit that were coming into effect in 2014. Birenbaum states that for “50 of Canada’s fastest-growing companies these credits represented 22% of their financing in 2012,” illustrating how SR&ED credits are valued by companies.
Birenbaum notes the “most significant” change to the SR&ED program as “the elimination of R&D capital assets as eligible deductions.” Birenbaum quotes Howard Lerner (CA and partner at Richter LLP) as advising clients to acquire and use “any planned capital expenditures … before December 31, 2013.” Birenbaum gives examples of the types of “equipment that often qualified under the program” as equipment used in laboratories or test facilities, food processing (e.g. ovens, freezers, etc.), “Computer equipment used for testing software programs,” and vehicles used to test alternative fuel sources.
The article concludes that “business owners” wishing to claim SR&ED tax credits should seek professional advice from those “knowledgeable in SR&ED.” Birenbaum advises those who own “specialized equipment companies” to utilize their sales force to “capture this window of opportunity” as “after 2013, the after-tax cost of these products will rise significantly for customers.”
Birenbaum, R. (April 9, 2013.) Change is coming- Capital assets, tax credits, and SR&ED. Toronto Star Online. (Accessed: May 27, 2015.) Retrieved from: https://www.thestar.com/business/small_business/money/2013/04/09/change-is-coming–capital-assets–tax-credits-and-sr-ed.html.
January 24, 2013. Barrie McKenna. Globe and Mail.
This report discusses some of the large changes made to the SR&ED program in the early 2010s. The specific changes it describes are the web-based tool for claims assessment, the pre-approval process, and changes to the appeals process.
However, this was a time when a number of changes were being announced, and the article comments on the general trend of reduced SR&ED spending and increased scrutiny. SR&ED credits are described as unreliable, with projects treated differently from year to year or depending on location. The article also discusses some of the effects of the policy changes on Canadian businesses. Large companies were especially affected by the 750 billion dollars of anticipated reduction, owing to specific cuts to larger companies specified in changes to the tax code.
McKenna, B. (January 24, 2013.) Ottawa moves to streamline R&D tax-credit program. Globe and Mail Online. (Accessed: February 1, 2017.) Retrieved from: http://www.theglobeandmail.com/report-on-business/economy/ottawa-moves-to-streamline-rd-tax-credit-program/article7807511/.
April 12, 2013. Howard Lerner and Shawn Rosenzweig, Guest Contributors. Financial Post.
In this article Lerner and Rosenzweig, two tax specialists in Toronto, highlight the Scientific Research and Experimental Development (SR&ED) tax credit and the Ontario Interactive Digital Media Tax Credit (OIDMTC), which they call, “highly lucrative, and surprisingly underutilized tax credits.” The authors use the example of a mobile game developer to highlight the features of both tax credits. They propose, “if you’re a mobile game developer, and you’ve invested in the development of a crossplatform game engine to replace the current software framework, which is only compatible with iOS architecture, qualifying expenses for that project could be eligible” under the SR&ED tax credit. In contrast to the SR&ED program, marketing expenses are eligible under the OIDMTC. The authors continue to use the mobile game developer example and suggest “if the mobile game developer uses its newly designed crossplatform engine to build interactive gaming software, the expenses associated with developing, marketing and distributing that software could be eligible” under OIDMTC. The authors provide various eligibility criterions for each tax credit, and highlight that it is possible to file claims for both, however, they emphasize that claimants should “be wary” as “applicants of both credits can’t claim an expense twice; therefore, you need to ensure each claim is clearly separated.” The article concludes with further emphasis on the importance of maintaining contemporaneous documentation and encourages businesses to apply for the credits and not assume that the “the team has to don lab coats and have a scientific breakthrough to be eligible.”
Lerner, H. and Rosenzweig, S. (April 12, 2013.) Two tax credits entrepreneurs can’t afford to ignore. Financial Post Online. (Accessed: June 13, 2017.) Retrieved from: http://business.financialpost.com/entrepreneur/two-tax-credits-entrepreneurs-cant-afford-to-ignore.
October 28, 2013. Barrie McKenna. Globe and Mail.
This article reports on an Organization for Economic Co-operation and Development Report (OECD) from 2013 which suggests that multi-national corporations may be taking advantage of the SR&ED tax credit system by accruing tax credits for research in Canada, but moving the profits created by those benefits to different countries in order to reduce their tax rate.
The author represents the OECD report as stating definitely that direct funding is a better way of financing research than tax credits, which is not exactly the case. While McKenna is right that the OECD report declares direct funding to be more effective than previously thought, the report does not exactly encourage all countries to simply abandon their tax credit programs. It contains a number of recommendations for R&D tax credit policy that would encourage the use of the programs by smaller corporations and prevent abuse by multi-nationals.
McKenna, B. (October 28, 2013.) For Canada, it’s crucial to get it right on innovation policy. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/economy/for-canada-its-crucial-to-get-it-right-on-innovation-policy/article15111039/?ref=http://www.theglobeandmail.com&.
July 4, 2012. Jeffrey G. MacIntosh, Guest Contributor. Financial Post.
In this article MacIntosh is critical of Jim Flaherty’s (Finance Minister 2006 – 2014) plans to redirect SR&ED funding to programs such as grant (or “direct”) funding and remove capital and equipment expenditures from qualifying SR&ED criterion, having been recommended by Tom Jenkins’ (Open Text) “blue-ribbon” panel. MacIntosh states these policies have “the potential for harming rather than helping commercialization efforts.”
MacIntosh highlights allowing only labour to qualify for SR&ED leaves “early-stage firms” at risk of falling into the “Valley of Death” which he describes as “the capital‐starved region sandwiched between government‐financed basic and applied research, and later‐stage private funding by angel investors, [etc.].” MacIntosh notes that early-stage/start-up firms may rely on SR&ED as their “only available source of funding,” and cutting this could ultimately limit the number of start-ups that develop into larger businesses. The article suggests Jenkins’ recommendations come from the view that “much of the $3.5‐billion poured into the federal SR&ED program is wasted since there is no vetting of the quality of firms receiving support” and instead with grants the government can target firms that “it thinks are likely to be winners in the commercialization sweepstakes.” This approach, however, has limitations, as discussed by MacIntosh in that “of every 100 investments made by the most skilled technology investors … one or two end up as “home runs”,” MacIntosh suggests if skilled investors “find it so difficult to pick the right [start-ups]” the government cannot be expected to improve its “track record” by moving to grant programs. MacIntosh describes the “absence of vetting” as a “huge plus” as ultimately the SR&ED tax credit is “considerably less risk” and funding can be acquired in “half the time” compared to grant funding.
The limitations to the five-year “growth benchmark” which was brought into effect as Jenkins’ recommendations suggested that “within five years of incorporation, only 2% of SR&ED recipients grow into large firms still performing research and development” are also highlighted in the article. MacIntosh states “most experts … agree that it takes between 10 and 15 years to commercialize new materials technology. Energy technologies may take 30” and suggests it would be problematic if the government were to deny funding to start-ups that had not begun a trajectory for growth after their fifth year as they may still have the potential to develop into successful businesses. MacIntosh is also critical of the move to “restrict the SR&ED to labour costs alone” as this may have adverse effects on the manufacturing industry, which has “a relatively high capital/labour ratio” and states, “a successful innovation economy is critically dependent on a robust manufacturing sector.” MacIntosh concludes that while Canada may have issues in how it brings its innovations to market “eviscerating the SR&ED” is unlikely to help commercialization.
MacIntosh, J.G. (July 4, 2012.) Why cut innovation?; Flaherty wrong to slash key research tax credit. Financial Post Online. (Accessed: June 13, 2017.) Retrieved from: http://business.financialpost.com/opinion/why-cut-innovation.
Document the evolution of your invention; Only unique work receives SR&ED credit, 2012
November 19, 2012. Drew Hasselback. National Post.
In this article Hasselback explains, in very plain terms, a project’s eligibility for SR&ED as, “did [the company] keep detailed records showing how their work began with a hypotheses, moved through testing and modification, and ended with some sort of techno logical [sic] advance.” Hasselback uses a Tax Court of Canada case relating to Airmax Technologies Inc. and the company’s appeal against a CRA ruling to highlight the criteria for eligibility in SR&ED claims. The article uses the court case to emphasize the difference between “routine engineering” and genuine SR&ED-eligible work. The case used in the article features the company’s claim being partially rejected as the CRA believed the work to be “routine engineering.” Hasselback, however, highlights that the company “identified a problem […] and after lots of research and experimentation, it came up with a solution.”
Hasselback, D. (November 19, 2017.) Document the evolution of your invention; Only unique work receives SR&ED credit. National Post. pg. FP7.
November 27, 2012. Chris Griffiths, Guest Contributor. Globe and Mail.
In this rare positive article from the Globe and Mail about the SR&ED program, Chris Griffiths (a guest author) describes the benefits he has incurred from the tax credit. However, at the same time, Griffiths arguably understates the complexity of the SR&ED program, stating that:
“Any small business in any industry can qualify, as long as the work you are doing, and the expenses related to that work, are spent trying to advance products or processes in ways that have unpredictable outcomes.”
While he describes his personal application, which did qualify for SR&ED, his simplified definition for eligible activities casts a bit too large a net. As much as it is important not to be swayed by journalism that describes the SR&ED program as a catastrophic boondoggle rife with fraud, it is also important not to be cavalier when applying for the program.
Griffiths, C. (November 27, 2017.) One Tax Credit Not to be Ignored. Globe and Mail Online. (Accessed: July 29, 2017.) Retrieved from: http://www.theglobeandmail.com/report-on-business/small-business/sb-money/one-tax-credit-not-to-be-ignored/article5607436/.
December 10, 2012. Katherine Scarrow. Globe and Mail.
In this article, Scarrow discusses a recent American Express (AMEX) “Small Business Monitor” survey of “585 small business owners [SBOs] across Canada.” Scarrow describes the survey as a “paradox” as SBOs have an “intolerance for risk,” which means “43 percent” instead “focus […] not on developing new products but on improving on existing ones.” The article also highlights that “58 per [cent] of businesses have not taken advantage of government resources in which they are eligible, including the the [sic] Scientific Research and Experimental Development (SR&ED) tax credit.” Scarrow concludes with the finding that “61 per [cent] of SBOs say sales, marketing and branding is an area where innovation is most required.”*
*It may be of interest to note that this is potentially the reason why so few SBOs have tried to claim the SR&ED tax credit, as marketing and market research costs are ineligible.
Scarrow, K. (December 10, 2012.) Startup paradise is real – just don’t go searching for it in Canada: Small business owners keep eyes in the rear view mirror. Globe and Mail Online. (Accessed: June 21, 2017.) Retrieved from: https://www.theglobeandmail.com/report-on-business/small-business/sb-managing/startup-paradise-is-real—just-dont-go-searching-for-it-in-canada/article6148153/?arc404=true.
December 6, 2012. Francis Moran. Francis Moran & Associates.
In this article, Moran highlights the disconnect between research and development (R&D) and marketing activities in a company and the problems that may arise. Moran states, “the temptation is very real at almost every company to design a new product in response to a single customer’s description of what they’d really like to see” and, Moran argues, the SR&ED program allows this as “the R&D department can […] build that product with 65-cent dollars.” This leads to what seems like profitable R&D work, as after the SR&ED tax credit has been claimed the company has not lost money; however, it may not translate to broader sales and a successful product: “CEOs can do the simple arithmetic of subtracting the annual SR&ED cheque from revenues and watch their lovely black numbers turn horribly red.”
The article emphasizes that marketers “need to be able to demonstrate that the marketing of a strategically conceived product — one that enjoyed a proper customer needs analysis and business case before it went into development — was successful in [Return On Investment] terms.” This article highlights one issue that many critics have regarding the SR&ED program; namely, that the program appears to generate less income for Canada than is invested (“$3.5-billion”). The article concludes with what could be a solution; marketing and R&D teams working together to “show how the most profitable of outcomes can be achieved when effective, market-driven product strategies are married to an R&D process that applies generous-but-still-not-unlimited government incentives only to the most promising projects.”
Moran, F. (December 6, 2012.) SR&ED and the law of unintended consequences. Francis Moran & Associates Online. (Accessed: October 5, 2017.) Retrieved from: http://francis-moran.com/technology-marketing/sred-and-the-law-of-unintended-consequences/.
March 12, 2012. Jodi Lai. Financial Post.
This article examines the negative aspects of how SR&ED may have been affected by the Tom Jenkins report, Innovation Canada and features the opinion of Julie Bond, president of Bond Consulting, a Toronto-based tax consultancy firm that specializes in SR&ED. Bond believed that the SR&ED program was at risk of coming “to an end,” which would put “the livelihoods of some tax consultants and small businesses at stake.” Bond argues the report’s suggestions, to replace the SR&ED system with one focused towards grants and direct funding, would favour large businesses as they have “entire [Research and Development] departments, because [grants and direct funding initiatives] often fund projects in their idea stages,” whereas small and medium-sized businesses are more likely to conduct R&D “on the shop floor” and their R&D is “often time-sensitive” and so the process of “stop[ping] a project, writ[ing] a business plan, send[ing] it in to a bureaucratic organization” and then “wait[ing] three months for a response” would mean that “by that time, [small or medium-sized businesses have] lost the project.”
Bond argues that small businesses were “not represented on the panel that wrote the Jenkins report” and adds that, although they “provide[d] some missions for the panel” they were “not asked to be on it.” Bond adds that “[small businesses are] absolutely opposed to removing some of the funding toward SR&ED and putting it toward direct grants and subsidies” and concludes that “some people argue that [the SR&ED program] is effective and it creates jobs, but it’s hard to see,” however, Bond highlights that if the SR&ED program were to be abandoned, “[Canada would] quickly see the results, which is foreign companies moving out and small and medium-sized business not innovating.”
Lai, J. (March 12, 2017.) Worry grants may stifle innovation. Financial Post Online. (Accessed: June 20, 2017.) http://business.financialpost.com/entrepreneur/worry-grants-may-stifle-innovation.
March 26, 2012. Dan Ovsey. Financial Post.
In this article Ovsey examines the effect the Jenkins report* will have on small businesses in Canada and their research and development (R&D) efforts. Ovsey highlights that one of the recommendations in the report was to simplify the “tax credit system so that small businesses […] wouldn’t need to spend funds on accountants who could help them attain public funding.” Ovsey also highlights, however, that “the report’s recommendations of moving toward a grants-based system could also hinder R&D investment […] by making public funding […] contingent on the approval of grants.” In the article Ovsey emphasizes that “many small businesses invest money into research and development projects or the establishment of innovative processes to enhance productivity and later receive refunds for those investments via tax credits” and so to change to a grant-based system could mean “many small businesses […] won’t proceed [with R&D work] unless they are certain they will be able to recoup some of their costs,” which may ultimately hinder R&D output.
Ovsey highlights a statement from Charles Lamman, an associate director at the Fraser Institute think tank, who suggests that “competitive pressures are what spur innovation” and so would encourage “more competition in key industries.” Lamman’s view is “echoed” by Jim Milway, executive director of the Martin Prosperity Institute [think tank], who also believes that “the government’s proactive approach to establishing free trade agreements and opening Canada’s economic borders to increased foreign activity will generate a natural kick-start to innovation.”
*The report the article refers to is Innovation Canada by Tom Jenkins.
Ovsey, D. (March 26, 2012.) Fate of R&D funding a nail-biter for small business. Financial Post Online. (Accesed: June 20, 2017.) Retrieved from: http://business.financialpost.com/uncategorized/fate-of-rd-funding-a-nail-biter-for-small-business.
May 7, 2012. Denis Lajoie, Guest Contributor. Financial Post.
In this article Lajoie highlights the “significant changes” Ottawa planned for the SR&ED program in the Spring 2012 Federal Budget. Lajoie states the changes “most directly affect large corporations” as their potential funding from the SR&ED program is reduced in favour of more funding being directed towards “direct support for business R&D and venture capital funds.” The article also denotes positivity for “smaller entrepreneurial companies” and “small Canadian-controlled private corporations (CCPCs)” as their 35% rate would be maintained, as well as their “requirements for refundability.”
The article also examines various new forms of capital, including “a $400-million commitment to help increase private sector investments in early-stage risk capital” in addition to “$100 million of additional funding will be made to the Business Development Bank of Canada to support venture capital financing.” Lajoie states some of this capital is primarily focused on “small to medium-sized business” such as the 2014 elimination of capital expenditures from SR&ED calculations. Some of the changes proposed, however, included notable reductions to eligible amounts, including the “prescribed proxy amount,” which was reduced from “65% of each $1 of eligible labour” to “60% in 2013, and 55% after 2013,” and “the inclusion rate” for “sub-contracted R&D” falling from 100% to 80%.
Lajoie concludes that businesses seeking to claim SR&ED tax credits should “do their homework” to learn about the changes and “be aware of the many government-funded options for R&D and innovation.” Ultimately the article encourages businesses to know what tax credits are available, and highlights the importance of understanding “the requirements of a given incentive or funding program” so businesses can apply for funding “in the proper manner and have the necessary information in their files to demonstrate compliance.”
Lajoie, D. (May 7, 2017.) Ernst & Young insight: Changes to SR&ED tax credit impact entrepreneurs and innovation. Financial Post Online. (Accessed: June 20, 2017.) Retrieved from: http://business.financialpost.com/ey-insights/ernst-young-insight-changes-to-sred-tax-credit-impact-entrepreneurs-and-innovation.
November 1, 2012. Barrie McKenna. Globe and Mail.
Chronicling the effect of changes to the SR&ED program in 2012, McKenna speaks to members of the Canadian business community. Morgan Elliot, director of government relations at Research In Motion (RIM, now BlackBerry Limited) argues that the changes to the SR&ED program will have a negative effect on Canadian research, suggesting that in addition to the direct decrease of a total of $750-million dollars in tax credits, the changes might influence Canadian companies to spend less on research and development.
This article points to a report by the Canadian Manufacturers and Exporters Association (CME), stating that the changes to the policy, with reductions in SR&ED spending combined with increased direct funding, will have different effects on Canadian companies based on size. Smaller companies stand to gain potentially more funding through grants, with fewer funds being directed towards large corporations due to changes in the SR&ED tax credit rate and eligible expenses.
McKenna, B. (November 1, 2012.) R&D tax credit changes under fire. Globe and Mail Online. (Accessed: June 29, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/economy/canada-competes/rd-tax-credit-changes-under-fire/article4839501/?ref=http://www.theglobeandmail.com&.
Sweeping changes proposed for R&D programs, 2012
March 30, 2012. Dana Flavelle. Toronto Star.
This article discusses the changes proposed by Tom Jenkins’ report Innovation Canada.* In the article, Jim Flaherty (Finance Minister 2006 – 2014) states, “the government needs to overhaul the way it promotes private sector productivity” and that programs funding research and development (R&D) are “necessary to help sustain a modern, competitive economy – they encourage innovation.”
Flaherty admits, “the key is to leverage private sector investment in research and development” however, “in spite of our efforts so far, Canada is not keeping up with other advanced economies on this crucial front.” Flavelle outlines the changes that Ottawa are to propose to the SR&ED program, including a reduction in funding of “$1.3 billion over the next five years,” where instead it will hand out “$1.1 billion in direct grants to businesses involved in R&D” and will “plow $500 million into venture capital funds to help start-ups convert new ideas into commercial products” and also “double spending on R&D by small- and medium-sized business next year to $220 million under its Industrial Research Assistance program.”
Flavelle concludes that the government intended to make the changes to “make the federal R&D program less complex and more efficient,” however, notes that business groups disagree with the proposed changes as they “fear it will give Ottawa more control over who gets to benefit from the program.” In the article, Dan Kelly (national vice-president with the Canadian Federation of Independent Business) is quoted, stating his concern as “Ottawa has a terrible track record of picking winners.”
*The report the article refers to is Innovation Canada by Tom Jenkins.
Flavelle, D. (March 30, 2012.) Sweeping changes proposed for R&D programs. Toronto Star. Pressreader. (Accessed: October 4, 2017.) Retrieved from: https://www.pressreader.com/canada/toronto-star/20120330/281990374489691.
February 1, 2012. Jeffrey Simpson. Globe and Mail.
The article examines Canada’s stagnation in productivity and innovation (as “innovation lies at the core of enhanced productivity”) despite its generous spending on research and development programs. Simpson focuses specifically on the effect an ageing population has on the need for those of working age in the country to increase their productivity.
Simpson continues to suggest that Canadian politicians have trialled many “textbook” suggestions to enhance productivity; “intelligent fiscal policies, lowered taxes, tried to reduce regulations, entered into liberalized trade deals, privatized Crown corporations, invested in research and skills training.” However, none of these previous efforts have succeeded in increasing productivity. Simpson also mentions Jenkins’ report and the suggestions from it that the Harper government planned to instigate (such as the creation of an “Innovation Council to try to co-ordinate programs better”, modifying and reducing the SR&ED program to spend “some funds on direct grants” and a “shake-up of the National Research Council”).
The article concludes that “the Harper government, like its predecessors, is sufficiently dismayed by lagging productivity that it is willing to shuffle programs around and create new structures” however doubts that the programs are the reason for the reduction in productivity as they have been “among the most generous in the world” and instead suggests that potentially, “Canada has industries that just don’t do much research and development” and, therefore, the opportunities for innovation and enhanced productivity are limited.
Simpson, J. (February 1, 2012.) Can Ottawa spark innovation? It hasn’t yet. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://www.theglobeandmail.com/opinion/can-ottawa-spark-innovation-it-hasnt-yet/article1360381/?arc404=true.
January 13, 2012. Susan Lunn. CBC News.
Similar to McKenna’s December 16th, 2011, article, Lunn also approved of the Harper government’s proposed changes to cut the bureaucratic “red tape” that draws a line between innovators and the SR&ED program.
The article included a quote by SREDucation contributor and InGenuity Group CEO Elizabeth Lance. An SR&ED consultant herself, Ms. Lance supported this streamlining approach, saying that “applying to 60 different programs with 60 different sets of regulations just doesn’t make sense.”
Lunn, S. (January 13, 2013.) Ineffective R&D Funding System Faces Overhaul. CBC News Online. (Accessed: June 6, 2017.) Retrieved from: http://www.cbc.ca/news/business/story/2012/01/31/pol-research-randd-funding-changes.html.
April 4, 2012. Dan Ovsey, Financial Post.
In this article Ovsey discusses the planned changes to “the way Canadian businesses access venture capital and research and development [R&D] funding,” as highlighted by Minister of State for Science and Technology, Gary Goodyear. The plans sought to change the SR&ED program “to reduce the taxable benefit to businesses while the grant-based Industrial Research Assistance Program (IRAP) would receive a funding boost of $110 million each year.” Ovsey also discusses arguments from “industry leaders [who] have voiced concerns that moving the funding model […] away from tax incentives and toward grant-based systems could make access to public R&D funding more subjective […] as it would put the decision-making power of funding allocation in the hands of government instead of the free market.” Ovsey features a quote from a national SR&ED leader at PwC, Vik Sachdev, who states, “it’s going to be a challenge for the government to have success in picking the industries and the companies that will be the future stars of tomorrow.”
Finance Minister Jim Flaherty stated the “government had been keeping a watchful eye on the formulas other countries were using to fund R&D with the intent to emulate those with successful formulas.” Gregory Thomas, federal director of the Canadian Taxpayers Association (CTA), however, suggests the government should focus on “fewer programs, simpler organizational structure and programs that are more easily understood, [… scrap] the entire bureaucracy and pork-barelling [sic] apparatus and just deliver tax relief to Canadians across the board.” Ovsey concludes that it is unlikely R&D tax credits will be completely abolished, as “the pool of private venture capital in Canada had dried up long ago – a situation the government is looking to counter with a $400 million injection into a fund to supplement venture capital investment for Canadian business.”
Ovsey, D. (April 4, 2012.) Transformative’ changes to R&D funding model to be revealed over next year. Financial Post Online. (Accessed: June 20, 2017.) Retrieved from: http://business.financialpost.com/uncategorized/transformative-changes-to-rd-funding-model-to-be-revealed-over-next-year/wcm/0b3ca678-0d15-4e7a-92e8-7dff8b72a061.
February 19, 2012. Barrie McKenna. Globe and Mail.
Here, McKenna addresses the Federal Taxpayers’ Ombudsperson Paul Dubé’s report, released in February 2011. McKenna argues that Dubé’s report does not show the whole picture regarding his investigation of the SR&ED program. He states that because the Harper government is uninterested in the results of that particular report, preferring to base their budget decisions on the results of the Jenkin’s report, released in 2011.
The Jenkins report called for a change in strategy from indirect to direct funding methods, while Dubé’s report is more concerned with the way the CRA establishes scientific eligibility, as well as regulation of claims preparers. McKenna declares his suspicions that a truncated version of the Dubé report was released to the public for political reasons – the Conservatives already had planned to follow the recommendations of the Jenkins report. McKenna worries that the end result will be overall reduced R&D spending, without actually improving the SR&ED tax credit application process.
McKenna, B. (February 19, 2012.) A glaring need to determine what’s legitimate R&D. Globe and Mail Online. (Accessed: February 1, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/a-glaring-need-to-determine-whats-legitimate-rd/article547328/?ref=http://www.theglobeandmail.com&.
January 29, 2012. Barrie McKenna. Globe and Mail.
This article was the second published, in as many days, which focused on Stephen Harper’s (Canadian Prime Minister 2006 – 2015) response to the findings from Tom Jenkins’ report Innovation Canada* at the World Economic Forum in Davos, Switzerland.
McKenna quotes Harper as being “not happy” in regards to the “roughly $7-billion-a-year” spent on research and development (R&D). McKenna goes on to state that Harper would introduce the recommendations from Jenkins’ report, including “revamping the $3.5-billion-a-year SR&ED program.” The article outlines other key points from the report that included recommendations to “limit the credit to labour costs and reduce the generous refundable credits available for smaller Canadian-owned companies.” The author states these are “sensible suggestions” however, “if the money is going to be diverted from SR&ED, to where?” and speculates whether some companies or industries will be favoured over others.
McKenna goes on to use the biotech industry’s introduction of “flow-through shares” (explained by a partner in corporate finance at Norton Rose, as shares that “allow companies to transfer tax deductions to investors … to lower their personal or corporate tax”) to help companies get to commercialization when they need capital but have few sources of funding. Flow-through shares could act as a solution to bridge what the Canadian Advanced Technology Alliance deems a “commercialization,” as opposed to an “innovation” gap in Canada.
*The report the article refers to is Innovation Canada by Tom Jenkins.
McKenna, B. (January 29, 2012.) Stephen Harper’s innovation challenge: Canada falls behind its rivals in R&D: Biotech sector backs the idea of flow-through shares. Globe and Mail Online. (Accessed: February 1, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/the-innovation-challenge—and-the-misallocation-of-capital/article4171272/?ref=http://www.theglobeandmail.com&.
January 27, 2012. Barrie McKenna. Globe and Mail.
The article highlights, then Prime Minister, Stephen Harper’s statements made in Davos, Switzerland at the World Economic Forum regarding Canada’s SR&ED program. McKenna states Harper “acknowledged the country isn’t getting good value from the money it spends pushing Canadian companies to be more innovative.” McKenna argues that the SR&ED program should be replaced by a simpler, smaller fund focused on “business innovation” based on the findings from a report headed by Tom Jenkins, chairman of Open Text Corp. McKenna continues, “companies that use the [SR&ED] program have long complained that [it] is too bureaucratic, unpredictable and bears no relation to how company’s [sic] actually conduct R&D.”
The article concludes with further recommendations from the report, including creating a single federal minister and agency to control innovation spending, making programs “simpler, transparent and accountable,” shifting from “tax breaks to direct funding” and increasing funding to “‘late-stage’ venture capital.”
McKenna, B. (January 27. 2012.) Harper signals Canada’s looming R&D revamp. Globe and Mail Online. (Accessed: July 29, 2017.) Retrieved from: https://beta.theglobeandmail.com/news/politics/harper-signals-canadas-looming-rd-revamp/article1357064/?ref=http://www.theglobeandmail.com&.
December 11, 2012. University of Calgary. School of Public Policy.
This press release from the University of Calgary discusses a report released by the university by “Research Fellow at The School of Public Policy and former manager of the Tax Evaluation and Research Group at Finance Canada,” John Lester.* The release highlights three changes proposed to the government by Lester, intended to “increase accountability and transparency of [government] spending.”
Lester proposes “responsibility for existing tax-based spending programs should be shifted from the Department of Finance to the relevant spending departments” and gives the example that the “Industry Canada portfolio” should manage the SR&ED program. Lester states that this would make it “easier to choose the best way to support R&D and to eliminate waste.” Lester also suggests that government books and reports be “improved” to give a “better oversight of these massive costs,” in reference to the “$26-billion in what amounts to federal spending […] delivered through the tax system.” Lester’s final proposal is to include “tax-based spending programs” in government evaluation policy and strategic reviews to ” ensure that tax measures are effective while broader coverage will make strategic reviews fairer and more efficient.”
The press release concludes that the changes suggested would “make government spending more transparent, improve accountability, and result in better policy choices,” however suggests there may be opposition from the government, “particularly from the Minister of Finance who would lose the power, exercised jointly with the Prime Minister.”
*The report discussed in this article is Managing Tax Expenditures and Government Program Spending: Proposals for Reform by John Lester.
University of Calgary. (December 11, 2011.) The School of Public Policy Releases Report Calling for Fundamental Changes to Budgeting of Tax Breaks: Billions of dollars in tax expenditures escape effective scrutiny. (Accessed: August 22, 2013.) Retrieved from: www.newswire.ca/en/story/1087293/the-school-of-public-policy-releases-report-calling-for-fundamental-changes-to-budgeting-of-tax-breaks. (Note – this news article is no longer available online, but the report is available via the link above.)
March 25, 2012. Barrie McKenna. Globe and Mail.
This article examines what McKenna refers to as the “save SR&ED” lobby and its response to the recommendations for SR&ED set out in Tom Jenkins’ Innovation Canada report.*
McKenna suggests that venture capitalists, SR&ED consultants and “various sectors of manufacturing” are part of the “save SR&ED” lobby, which have “lobbied furiously” to “make the [SR&ED] program even more generous than it is now” and “delay any changes, pending further consultation.” This comes as a response to Jenkins’ recommendations to “limit the [SR&ED] credits to labour costs, reduce the generous [35%] refundable credit for small Canadian-controlled private companies, and then plow the savings back into more strategic and later-stage financing.”
The article quotes John Ruffolo (chief executive of OMERS Ventures) in opposing these recommendations as he states “we should look at ideas to deliver [the SR&ED program] more efficiently and eliminate any abuse, but let’s not throw out the baby with the bath water.” Mike Brown (chairman of Chrysalix Energy Venture Capital) is also quoted as calling “SR&ED the “bedrock” of venture capital” and states that it enables “small innovative companies to survive long enough to attract later-stage investment.” Ultimately Ruffolo and Brown defend the SR&ED program; they admit that the program may need “tighter rules,” however they oppose the recommendations set out by Jenkins’ report.
The article concludes that “abuse is … an acknowledged problem;” however, the degree of the abuse is not confirmed, nor compared to other abuses in the current tax system such as tax sheltering schemes, such the estimated $6 to 7.8 billion in tax revenues lost to offshore tax evasion every year 9 McKenna states that there is an “inherent design flaw” in the SR&ED program and suggests that due to the generous (“35% cash rebate on the first $3-million of eligible R&D expenses”) for small Canadian-controlled companies, the program may have a “disincentive to grow” and may “split R&D activity between multiple smaller, inefficient entities.”
*The report the article refers to is Innovation Canada by Tom Jenkins.
McKenna, B. (March 25, 2012.) Innovation needed on a flawed R&D incentive scheme. Globe and Mail Online. (Accessed: June 29, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rob-commentary/innovation-needed-on-a-flawed-rd-incentive-scheme/article536403/?ref=http://www.theglobeandmail.com&.
March 23, 2012. Barrie McKenna. Globe and Mail.
This article follows the Minister of State for Science and Technology, Gary Goodyear, as he travels the country preparing for the release of the new Conservative budget. It describes the changing priorities of the government with respect to research funding, with cuts to overall spending in the SR&ED program, and increases to direct funding programs.
Goodyear argues that the overall effect of these changes will be to encourage not only R&D, but the commercialization of that R&D. The general direction of all the changes involve more top-down control over what is researched, and less pure research – In government labs, this means scientific research is more informed by industry priorities, and in industry, research is more informed by government direct grants.
McKenna, B. (March 23, 2012.) Tories seek to spur corporate R&D spending with new budget. Globe and Mail Online. (Accessed: June 6, 2017.) Retrieved from: https://beta.theglobeandmail.com/news/politics/tories-seek-to-spur-corporate-rd-spending-with-new-budget/article535347/?ref=http://www.theglobeandmail.com&.
August 7, 2012. Karen Fournier. Financial Post.
In this article, Fournier examines the role of “third-party tax preparers” in SR&ED claims. Fournier highlights a public consultation on contingency fees and the Jenkins report,* which criticized the fees as “representing a too large portion [“30% or more”] of funds meant to support business R&D.” Fournier states contingency fees had been scrutinized as they’d led to “aggressive applications, thus increasing costs for the government.” Fournier emphasizes; “although contingency fees are considered the norm, some third-party tax preparers offer alternative payment models” and includes that hiring third-party tax preparers may be beneficial to the government as, ultimately, “tax preparers contribute to a more widespread knowledge of SR&ED and other tax incentive programs, and businesses that would not otherwise apply may undertake an application.”
*The report the article refers to is Innovation Canada by Tom Jenkins.
Fournier, K. (August 7, 2012.) What will happen to SR&ED contingency fees. Financial Post Online. (Accessed: June 20, 2017.) Retrieved from: http://business.financialpost.com/news/what-will-happen-to-sred-contingency-fees.
Harper vision ignores Ontario, 2012
March 31, 2012. Author Unknown. Toronto Star.
In this article, the author argues that Finance Minister Jim Flaherty’s, federal budget was “designed to boost winners, not backstop losers,” referring to Flaherty’s decision to focus economic development in already wealthy provinces such as Alberta, through developing the oil sands. The author argues Flaherty neglects other provinces and makes no mention of working with the Ontario government to develop an “adjustment plan that will buy the province enough time to redefine its future as a technologically sophisticated, globally competitive service centre, powered by its talent and ingenuity.” The author states that although Flaherty “dangled the prospect of business subsidies in front of companies that invest in research that drives economic growth,” the author argues the “central thrust of the 2012 Conservative budget is that Ottawa intends to boost the energy-rich West and let the benefits filter out to the rest of the country.”
Unknown Author. (March 31, 2012.) Harper Vision Ignores Ontario. Toronto Star. (Accessed: October 3, 2017.) Retrieved from: https://www.pressreader.com/canada/toronto-star/20120331/282656094421867.
April 3, 2012. Wilfred Sorenson, Guest Contributor. Toronto Star.
In this article Sorenson replies to an article published in the Toronto Star on March 31 2012, Harper vision ignores Ontario. In the reply, Sorenson argues that the reason Canada’s innovation may not match that of “other advanced nations […] is [because of] the lack of capital investment.” Sorenson emphasizes this with the example that at “trade exhibits promoted as a means of bringing innovators in touch with investors [you] will find plenty of [innovators] but few [investors].” Sorenson refers to changes the Harper government planned to make to research and development (R&D) tax credits and suggests that the proposed change would, “instead of promoting R&D, the tax credit in the recent budget will now only promote research while the credit for development will be eliminated.” Sorenson concludes that the proposed research tax credit would not lead to innovation as “innovation […] rarely results from research that has not been shown to work. Only a highly knowledgeable investor will consider an idea coming out of research that has not being followed up with at least a degree of development.”
Sorenson, W. (April 3, 2012.) Putting development back into R&D. Toronto Star. (Accessed: October 3, 2017.) Retrieved from: https://www.thestar.com/opinion/letters_to_the_editors/2012/04/03/putting_development_back_into_rd.html.
October 14, 2011. Barrie McKenna. Globe and Mail.
In this article, McKenna discusses the Mowat Centre report, Canada’s Innovation Underperformance: Whose Policy Problem Is It? by Tijs Creutzberg.* McKenna highlights aspects of the report referring to the SR&ED program and quotes Creutzberg as stating, “Canada is an extreme outlier in weighting its investment in innovation so heavily toward tax incentives and away from direct support to sectors” when compared to other OECD countries such as “Sweden and Germany.” McKenna suggests, “Canada’s record of turning knowledge into innovative products is poor” and so argues, in agreement with the report, to “dramatically cut its generous research and development tax breaks and plow the cash back into targeted grants for businesses.” McKenna concludes with the acknowledgement that “businesses and industrial groups” want to maintain, if not expand, the SR&ED program, however, continues to argue that tax incentive programs, like SR&ED, are “hurting the country” as they are “overlapping and confusing.”
*The report referred to in the article is, ‘Canada’s Innovation Underperformance: Whose Policy Problem Is It?’.1
McKenna, B. (October 14, 2011.) Study urges drastic cuts to federal R&D tax breaks. Globe and Mail Online. (Accessed: October 4, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/economy/study-urges-drastic-cuts-to-federal-rd-tax-breaks/article557332/?ref=http://www.theglobeandmail.com&.
October 16, 2011. Barrie McKenna. Globe and Mail.
Alongside his interview with expert panel reviewer Tom Jenkins, McKenna offered a positive response to the so-called Jenkins Report, a.k.a. Innovation Canada’s Review of Federal Support to Research and Development.* McKenna called the report a “long-overdue shift from talking about Canada’s innovation deficiencies, to actually doing something about them.”
The Globe and Mail article also provided an overview of criticisms of the program made in the report, including: SR&ED’s status as “R&D democracy over R&D meritocracy“; Canada’s failure to turn knowledge into innovation or commercialize its products; suspicious R&D claims; inconsistent/unpredictable rulings, and diverging an inordinate amount of SR&ED refunds to consultant fees.
*Read our summary of Innovation Canada’s Review of Federal Support to Research and Development.
McKenna, B. (October 16, 2011.) A Chance to Fix Our Broken R&D Model. Globe and Mail Online. (Accessed: June 7, 2017.) Retrieved from: http://www.theglobeandmail.com/report-on-business/commentary/barrie-mckenna/a-chance-to-fix-our-broken-rd-model/article2202881/.
October 17, 2011. Jameson Berkow. Financial Post.
This article discusses the report released by Tom Jenkins.* McKenna quotes Jenkins as stating that he found the government’s R&D funding a “system that is unnecessarily complicated and confusing to navigate” and the article offers six recommendations, not including that the “overall amount of R&D help Ottawa offers businesses be increased” as the panel was “prevented” from doing so. The recommendations include creating a council for “Industrial Research and Innovation” that would manage the government’s “60 R&D programs” and making it easier for small to medium-sized businesses to claim SR&ED by “basing future tax credits solely on labour costs.” The report also recommends focusing on “home-grown innovation” and “evolving the National Research Council”, as well as encouraging “the Business Development Bank of Canada (BDC) to work directly with angel investor groups” to fund startups and introduce a “single federal minister to act as de facto Innovation Czar.” The article concludes with another quote from Jenkins who states “Canada’s future position in the world economy is at stake” and encourages Canada to “unleash” its potential to be one of the world’s innovation leaders.”
*The report the article refers to is Innovation Canada by Tom Jenkins.
Berkow, J. (October 17, 2011.) Canada’s R&D funding system ‘unnecessarily complicated,’ panel finds. National Post Online. (Accessed: June 12, 2017.) Retrieved from: http://business.financialpost.com/entrepreneur/canadas-rd-funding-system-unnecessarily-complicated-and-confusing-panel-finds.
November 21, 2011. Tom Jenkins, Guest Contributor. Globe and Mail.
In this article, Tom Jenkins, chief executive of Open Text, and chair of the Expert Panel – Review of Federal Support to Research & Development discusses the six recommendations his panel made to government to improve Canada’s research and development (R&D). Jenkins compares Canada’s current R&D atmosphere to that of 1874 when “a medical student in Toronto named Henry Woodward and a local hotel keeper named Mathew Evans patented a nitrogen-filled light bulb,” which was subsequently patented and was then bought by Thomas Edison when he invented the light bulb. Jenkins argues “Canadians still struggle to keep their own bright ideas right here at home” and that this is due to the support that is available being “too hard to find, too hard to access, or too little to matter.” The article emphasizes that R&D leads to a more innovative business sector and “business innovation is the ultimate source of any country’s long-term economic competitiveness and quality of life.”
The article details the six recommendations presented to government to change R&D strategy** and concludes that Canada has a “strong financial sector, attractive corporate tax rates, a diverse, well-educated work force, significant natural resources, and institutions that safeguard the rights of individuals and encourage initiative and entrepreneurship.” Jenkins emphasizes that these traits contribute to “a solid foundation on which to build” a successful, innovative economy and bring it “shoulder-to-shoulder with the world’s innovation leaders.
*The report the article refers to is Innovation Canada by Tom Jenkins.
**These recommendations are summarized in other article summaries from late-2011 and 2012.
Jenkins, T. (November 21, 2011.) Setting a course for innovation success. Globe and Mail Online. (Accessed: June 20, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/economy/setting-a-course-for-innovation-success/article4184011/?ref=http://www.theglobeandmail.com&.
Harper Hints at R&D Tax Break Overhaul, 2011
December 16, 2011. Barrie McKenna. Globe and Mail
Two months after his previous article, McKenna applauded the Conservative Party’s pledge to improve the SR&ED tax incentive by streamlining the claiming process, moving toward a more direct funding approach, and limiting eligible expenses to R&D labour costs.
These proposed changes would effectively signal the demise of the SR&ED consultancy industry, a prospect McKenna was seemingly in favour of–he restated once again that large chunks of return amounts were “grabbed” by consultants, and away from R&D activities.
McKenna, B. (December 16, 2011.) Harper Hints at R&D Tax Break Overhaul. Globe and Mail Online. (Accessed: June 29, 2017.) Retrieved from: http://www.theglobeandmail.com/report-on-business/harper-hints-at-rd-tax-break-overhaul/article2274292/. (no longer available)
R&D tax scheme too rich, government panel finds: Report, 2011
October 18, 2011. Barrie McKenna. Globe and Mail.
The article argues that despite Canada’s SR&ED program being, “among the most generous tax breaks in the world,” Canada was falling behind rival countries, as the business spending on R&D was stagnant. McKenna argues Ottawa needed to “overhaul its flagship research and development programme because it spends too much money and fails to show any increase in innovation.”
The article features a report outlining that the government spent nearly $7-Billion on R&D but did not know “if that money [was] making Canadian companies any more innovative.” McKenna argues that there were, “at least 60 programs run by 17 different agencies,” and that these programs should be rationalized and put under the control of a single “innovation council.”
McKenna, B. (October 18, 2011.) R&D tax scheme too rich, government panel finds. Globe and Mail. pg. B1.
July 6, 2011. Diane Peters. Globe and Mail.
The article examines the difficulties a start-up mobile app company (Polar Mobile) faced trying to secure enough staff to deal with projects due to the delay in receiving government funding. Peters states, “Staffing is so tight that Mr. Gupta [Polar Mobile’s CEO] turned down a contract to avoid overwhelming his team.”
The article continues with three experts, Rod McNaughton (Director of Waterloo’s Conrad Business Entrepreneurship and Technology Centre), David Wilton (Director of small business banking, Bank of Nova Scotia, Toronto) and Steve Smith (Co-founder of CakeMail, Montreal). Each expert gives advice on how Polar Mobile could, “better bridge the cash-flow gap so [Gupta] can do the hiring he needs while he waits on government grants.”
The experts offer various pieces of advice, including seeking loans from “large corporate customers” or outsourcing to India or Africa (McNaughton), seeking a “line of credit” from the bank or using credit cards to accept payments (Wilton), and focussing on hiring, “software engineers … over admin and marketing” or obtaining SR&ED tax credits (Smith).
Peters, D. (July 6, 2011.) Wait for government grants slows hiring. Globe and Mail Online. (February 1, 2017.) Retrieved from: https://www.theglobeandmail.com/report-on-business/small-business/sb-money/wait-for-government-grants-slows-hiring/article4258955/?.
November 3, 2011. Andrew Coyne. McLeans.
In this article, Coyne argues that the money spent in “support for innovation” has been uneconomical and has, potentially, suppressed innovation in Canada. Coyne notes that from “1985 through 2006, Canada’s productivity growth ranked 15th out of 18 countries” even though Canada is thought to have “the most generous systems of R&D support in the world, behind only Spain and France.”
Coyne admits that “there is a tendency to treat innovation as if it were a piece of industrial machinery in itself: you inject a certain amount of government funding at one end, you get a certain amount of R&D at the other,” however, he continues that while there may be a correlation between the R&D funding provided by the government and the amount spent on R&D by companies, “there is very little connection between aggregate spending on R&D and innovation.” Coyne uses a report by the Council of Canadian Academies to define what he believes innovation should mean as, “new or better ways of doing valued things” and suggests that businesses can be allowed and “forced” to be more innovative.
The article concludes with options on how to “force” and allow businesses to innovate, including recommendations from a report by the C. D. Howe Institute which suggested “instead of stuffing firms with subsidies to innovate, governments would do better simply to refrain from confiscating so much of the returns when they do” and that competition will ultimately “force” businesses to innovate through “instilling fear” in the owners that if they don’t innovate, someone else will.
Coyne, A. (November 3, 2011.) A Grant Dump That Smothers Innovation. McLean’s Online. (Accessed: October 4, 2017.) Retrieved from: http://www.macleans.ca/general/a-grant-dump-that-smothers-innovation/.
February 6, 2011. Barrie McKenna. Globe and Mail.
In the first of what was to be a series of 2011 articles lambasting the SR&ED program for being ineffective and prone to abuse, Barrie McKenna visits a town hall meeting in Burlington, ON, between CRA officials and tax consultants.
McKenna’s reporting gives the efforts to improve the SR&ED program an edge of conspiracy: “The awkward truth is that the government has known for years that SRED is leaky.” His subsequent reporting on this issue would make this point repeatedly, depicting SR&ED as a program rife with corruption and abuse, presided over by a hopelessly incompetent and overwhelmed CRA.
McKenna, B. (February 6, 2011.) Dubious Claims Diminish R&D Tax Credit. Globe and Mail Online. (Accessed: June 5, 2017.) Retrieved from: http://www.theglobeandmail.com/report-on-business/rob-commentary/dubious-claims-diminish-rd-tax-credit/article622084/.
Abuse of R&D tax credit a case of the same old, same old, 2011
February 7, 2011. Barrie McKenna. Globe and Mail.
The article investigates the potential of bogus claims being made for SR&ED tax credits, McKenna states, “every dollar squandered is money that isn’t available for legitimate R&D at a time when Canada faces unprecedented global competitive threats.”
McKenna argues that the SR&ED program “in theory” should help companies “develop the kind of products that … drive the economy of the future,” however, he discusses the findings from a town hall meeting with tax consultants in Burlington, Ont. where he states,” CRA ofﬁcials from across the country painted a disturbing picture of a program gone badly astray” describing a “surge of bogus and unsubstantiated claims.” Andy Meredith, a then-CRA spokesperson, is quoted in the article as stating, “while the ‘majority’ of SR&ED claims are legitimate,” the CRA witnessed “’a growing trend’ toward a deteriorating ‘quality’ of claims.”
The article concludes that the government “knows there are problems.” Ottawa created an expert panel (headed by Tom Jenkins, executive chairman of Open Text Corp) to review its various R&D programmes, including SR&ED tax credits, and the Federal Taxpayers Ombudsperson, then Paul Dubé, was investigating whether the CRA was “administering the SRED program fairly” however, this report was delayed.
McKenna, B. (February 7, 2011.) Abuse of R&D tax credit a case of the same old, same old. Globe and Mail. pg. B2.
March 11, 2011. Barrie McKenna. Globe and Mail.
In this article, McKenna echoed observations made in meetings between the CRA and SR&ED consultants and accountants–namely, that a wave of questionable claims had gone through due to “hazy rules” in the CRA that failed to adequately define legitimate R&D activities.
Overall, McKenna painted a bleak, crime-ridden picture of SR&ED consultancy, referring to it as an “exploding cottage industry” that an unnamed CRA source had described as the industry’s “dirty secret”. Additionally, the article condemned SR&ED as an expensive program paid for by taxpayers without any tangible R&D outputs.
McKenna, B. (March 11, 2011.) Flawed R&D Scheme Costs Taxpayers Billions. Globe and Mail Online. (Accessed: July 29, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/flawed-rd-scheme-costs-taxpayers-billions/article577870/?ref=http://www.theglobeandmail.com&.
May 2, 2011. Brian Cookson, Guest Contributor. Globe and Mail.
In this article, Cookson gives tips to companies wishing to claim SR&ED tax credits and highlights how helpful and knowledgeable consultants in this area can be. Cookson includes eight pieces of advice, the first; that many companies often don’t identify “SR&ED projects at the right levels for funding,” or fail “to include eligible activities and costs” and often don’t recognize “which projects qualify for the program.” The second tip focuses on not being “greedy” in an SR&ED claim and Cookson encourages claimants if they “develop new products and processes each year” to “file a SR&ED claim each year.” The third to the seventh, importantly, encourage keeping relevant and recent, “contemporaneous,” documentation, remind claimants that claims can be back-dated up to three years. They also remind claimants “there is no need to get approval to make an SR&ED claim before beginning that new initiative” and, most importantly, with SR&ED claims, “if you miss the deadline, you get nothing.”
The eighth, and final, piece of advice highlights the CRA’s careful administration of the SR&ED program, and therefore the likelihood of having a claim reviewed. Cookson states, “about one-third of all claims are audited each year, and you can expect to be the subject of one of these in-depth evaluations at least every five or six years.” Ultimately the advice is useful and Cookson is positive towards the SR&ED program – highlighting that the CRA audit it carefully because, as an “expensive” program, their priority is to keep it “honest.”
Cookson, B. (May 2, 2011.) Cash in on government help to build a better mouse trap. Globe and Mail Online. (Accessed: June 13, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/small-business/sb-money/business-funding/cash-in-on-government-help-to-build-a-better-mousetrap/article4258960/.
Handbacks, not handouts, 2011
October 17, 2011. Neil Seeman, Guest Contributor. Financial Post.
This article highlights that the Scientific Research and Experimental Development (SR&ED) program is preferable to a “handout” culture of government grants, loans and targeted funding. Seeman believes that handouts “silence [ ] critics” and that truly innovative people, such as entrepreneurs and CEOs do not criticize the bureaucratic nature of applying for grants, loans, and targeted funding as these CEOs and entrepreneurs “might be applying for one of those handouts in the future.”
Seeman goes on to say that “handouts” may even “destroy companies” due to their “tendency to distract businesses toward meticulous compliance with irrelevant government policy and away from the goal of satisfying the customer.” Ultimately, Seeman concludes that even experienced venture capitalists (VCs) “only have a 10% chance of choosing the next big winner.” The article highlights that potentially “99%” of government money would be lost to targeted grants and loans due to “poorer picks than vested experienced business VC investors acknowledge, and with increased bureaucratic overhead.” By contrast, Seeman prefers the SR&ED program as it ensures “the company must first pay out the money, spending it based on its business priorities. Only later are the expenditures reviewed by the government to see what portion qualifies as research and therefore as eligible for the rebate.” Thus the SR&ED program is preferable to targeted grants and loans as the companies spend the money first, and the government refunds based on the work that is eligible.
Seeman, N. (October 17, 2011.) Handbacks, not handouts. Financial Post Online. (Accessed: October 4, 2017.) Retrieved from: http://business.financialpost.com/opinion/handbacks-not-handouts.
Canada’s sorry state of R&D, 2010
October 8, 2010. Barrie McKenna and Jeremy Torobin. Globe and Mail.
This article, like a few others in this list, tries to address broadly the problems facing research and development in Canada. Arguing that Canada’s patent rate (1.36% of global patents, compared to America’s 30%), less than a third of the per capita patent rate of the United States, is an indicator of an overall climate full of barriers to innovation.
In addition to discussing university intellectual property (IP) policies, lack of large Canadian tech companies, and the collapse of the tech boom, the authors point to SR&ED as an area where Canada can improve its innovation funding. This article talks specifically about lack of confidence in the result of a SR&ED application, and the perceived complexity of the program, two main factors which suppress R&D spending by Canadian companies.
McKenna, B. and Torobin, J. (October 8, 2010.) THE LAGGARD: Canada’s sorry state of R&D. Globe and Mail. pg. B4.
A little bit of give and take; Despite large innovation subsidies, Canada’s help comes with a price in paperwork, 2010
November 6, 2010. Adam McDowell. National Post.
This article examines the paperwork necessary to submit an SR&ED claim and its effect on claims. McDowell suggests, “a tangle of red tape could be to blame for Canada’s innovation failures.” McDowell also lists “businesspeople, think tanks and now a former prime minister [Brian Mulroney]” as those who have “stepped up demands on Ottawa to reduce the tax and regulatory burden on businesses — by making it easier to file for R&D tax credits, for example — as a way to balance Canada’s approach to energizing creativity in business.”
The article features quotes from several business leaders who believe there is too much paperwork involved in the SR&ED claim process or the Canada Revenue Agency (CRA) “fail to recognize innovation when they see it.” McDowell refers to the Coalition for Action on Innovation in Canada’s report, An Action Plan for Prosperity* that gave “10 recommendations for creating a more innovative Canada” and stated the CRA is often “‘adversarial and unpredictable’ when evaluating R&D tax claims.” Ultimately this is another article that criticizes the CRA’s monitoring of the SR&ED program, referring to the paperwork and required documentation as a “bureaucratic swamp of overlapping and outdated regulations that serve no real public policy purpose,” which the authors believe may be hindering research and development in Canada and encouraging companies to move their operations to the U.S.
*The report referred to in the article is An Action Plan for Prosperity, by John Manley and Paul Lucas.2
McDowell, A. (November 6, 2010.) A little bit of give and take; Despite large innovation subsidies, Canada’s help comes with a price in paperwork. National Post. pg. A4.
August 24, 2010. Bob Waterworth, Guest Contributor. National Post.
This article investigates eligible activities and some of the information needed to make a claim for SR&ED tax credits. Waterworth states, “A wide variety of activities in different types of businesses may qualify … I’ve seen eligible R&D in industries ranging from food and consumer products to high-tech information, communication and video games, to auto parts and engineering.”
Waterworth argues the benefits of the SR&ED program in allowing companies to “invest in further research” with local universities which benefit “both the company and a university.” The article goes further to discuss what documents should be kept when looking to file an SR&ED claim, including the time “employees spend working on R&D projects” and the forms that should be filed.
Waterworth concludes, “it can definitely be worthwhile for your small business to claim any R&D tax credits it is eligible for because claiming these credits can reduce the company’s tax burden and give its cash flow a significant boost.”
Waterworth, B. (August 24, 2010.) A tax credit that’s often overlooked. National Post. Pressreader. (Accessed: October 4, 2017.) Retrieved from: https://www.pressreader.com/canada/national-post-latest-edition/20100824/282733403174056.
May 17, 2009. David Olive. Toronto Star
Olive examines how Canada can retain its research talent through its research and development (R&D) tax credit program, SR&ED. The article uses the move of a top HIV/AIDS researcher to the U.S. to highlight the importance of maintaining expenditure in R&D.
Olive states that the Harper government was “vilified for cutting $148 million … from three agencies that fund basic research at Canadian universities,” and that these institutions had required essential funding for years to “upgrade labs and provide researchers with state-of-the-art equipment”. Olive argues that neither “pure” (no solution sought) nor “applied” (specific solution sought) research should be under-funded. Olive states pure, “curiosity-driven” research, “lead to the world-changing “accidental” discoveries of … Isaac Newton to Albert Einstein.”
The article concludes that business collaboration with research institutions ranks “among the lowest of 26 nations,” yet Canada should encourage more university-business collaboration, so it does not depend on foreign firms to bring inventions from Canadian research to market.
Olive, D. (May 17, 2009.) Researching and developing ways to save Canada’s R&D. The Star Online. (Accessed: October 4, 2017.) Retrieved from: https://www.thestar.com/news/2009/05/17/researching_and_developing_ways_to_save_canadas_rd.html.
Jim Flaherty’s R&D thoughts, 2008
January 25, 2008. Unknown Author, Opinion. Globe and Mail.
The article discusses how then Finance Minister, Jim Flaherty, could boost industrial research and development (R&D) in the wake of the looming recession. The author argues that, “it is only now, as the economy slows, that Ottawa is assembling a real strategy for R&D and scientific innovation, which could be pivotal for economic growth.”
The article also compares how the U.S. handled the fall in the economy by providing, “tax rebates of up to $600 for individuals,” to encourage spending on goods and services, to how Canada might negate the effect any recession would have on the economy. The author states how the Bank of Canada, “radically revised its estimates for real GDP growth,” from 2% to 0.6%, and depended on, “domestic demand, high commodity prices, real-income growth and further cuts in its key [interest] rate.”
The article concludes that, “support for industrial research could lead to better products and services, which would appeal to export markets,” and that “Ottawa’s help” would be integral to bringing these products or services to market. Interestingly, no mention is made regarding the current support of industrial research through the SR&ED program.
Author Unknown. (January 25, 2008.) CANADIAN ECONOMY: Jim Flaherty’s R&D thoughts. Globe and Mail. pg. A22.
Industry’s recipe for an innovative Canada, 2008
February 18, 2008. Robert Brown, Guest Contributor. Globe and Mail.
In this article, Robert Brown, CEO of an aviation simulation company, defends the SR&ED program as part of an open letter representing “more than 20 globally competitive Canadian enterprises.” Brown states the SR&ED program “makes money for Canada and supports innovative new activity” and also that the program “does not cost the government money,” instead it generates an “11-per-cent return on investment in new taxes” and “for every $1-billion returned to the industry in SR&ED tax credits, approximately 10,000 jobs and $675-million in economic activity is generated.”* Brown uses these examples to demonstrate the SR&ED program’s importance in maintaining the innovation of Canadian manufacturing companies. Further, he opposes the idea that “market forces are working the way they should and that we should concentrate on being a service-industry-based economy” as manufacturing is also a valuable industry and contributes “more than $3 in total economic activity” for every dollar spent.
The article continues to list recommendations for how to improve the SR&ED program. These include “making investment tax credits [ITCs] fully refundable,” removing ITCs from “the calculation of the tax base,” creating an “allowance for international collaborative research and development” and expanding ITCs to cover more development activities such as “patenting, prototyping [and] product testing.” Brown concludes that these measures would ensure “funds [would be put] back in the hands of innovators to develop the next generation of value-added products” and would “keep high-paying jobs that contribute to our standard of living in Canada.”
*The author gives no indication of the sources of this information and only refers to vague “studies”.
Brown, R. (February 18, 2008.) Industry’s recipe for an innovative Canada. Globe and Mail. pg. B2.
Tech Coalition Warns Takeover Spree is Nigh, 2007
February 6, 2007. Steven Chase. Globe and Mail.
Chase describes a dangerous situation for Canadian companies created when they have a large amount of SR&ED income tax credits (ITCs), but little income. Unable to recoup the accumulated credits without income to apply them against, the companies are concerned that their ITCs make them attractive targets for takeovers by another company, more able to make use of the credits.
As a proposed solution to this problem, several business leaders called upon the Canada Revenue Agency to allow them to apply their accumulated ITCs against other levies owing to the government. They would be able to reduce their accumulated amount by applying it to, for example, employment insurance payments.
Chase, S. (February 6, 2007.) TAXATION: Tech coalition warns takeover spree is nigh Companies tell Ottawa that delayed access to R&D tax credits make sector vulnerable. Globe and Mail. pg. B1.
Lender reluctance said to retard innovation, 2002
October 3, 2002. Michael Kane. Vancouver Sun.
In this article, Kane discusses the findings from a nationwide KPMG survey “conducted for the Canadian Advanced Technology Alliance [CATA].” The responses discussed focus on how Vancouver and other Canadian cities are viewed, primarily among businesses in the technological and innovative sectors. Kane highlights that “53 percent of senior executives […] say new companies cannot acquire the financing they need to establish themselves,” however, “35 percent of executives suggest that there is untapped venture capital in [Vancouver].” Kane quotes KPMG’s James Topham who states “companies have to make sure they are presenting their case well to financial institutions and dealing with the right people. Most banks have specialists who deal with technology companies” and suggests “early stage companies should be talking to venture capital companies.” Later in the article, Kane does not specifically name the SR&ED program, however, he highlights that “a Canadian-controlled private corporation can get up to 68.5 cents back on each dollar of R&D [Research and Innovation] spending,” however the results of the KPMG survey indicate that “28 percent of executives say the process of filing for their R&D tax credits is too cumbersome.” Additionally, Kane states that “17 percent say it is difficult to isolate any one innovation for the R&D tax credit, as their industry requires constant upgrades to the existing technology” and that only “18 percent” of companies annually apply for R&D tax credits and concludes quoting Ed Zacharuk from KPMG who encourages companies to “consider applying for their R&D tax credits as they are forgoing substantial savings.”
Kane, M. (October 3, 2000.) Lender reluctance said to retard innovation: High-tech execs share financing complaint, The Sun’s Michael Kane reports. Vancouver Sun. pg. C3.
Tips help maximize benefit from SR&ED tax incentive programs, 2002
November 8, 2002. KPMG, Guest Contribution. Globe and Mail.
This short column features tips from KPMG to ensure a successful SR&ED claim by determining which projects are eligible and getting the highest refund. The column gives helpful advice such as “SR&ED claims and IRAP grants can be received for the same activity” as well as encouraging claimants to keep contemporaneous and extensive documentation, including “prototypes, archived plans [and] drawings.” In order to maximize benefits, KPMG suggests “buying new equipment that can qualify for benefits” opposed to second-hand, ineligible equipment, and identifying any other, provincial, tax incentives that the claimant may be eligible for, such as “the 20% refundable Ontario Business Research Institute tax credit.”
KPMG. (November 8, 2002.) Tips help maximize benefit from SR&ED tax incentive programs. Globe and Mail. pg. 15.
The boondoggle continues, 2000
April 12, 2000. Unknown Author. National Post.
This article compares the Scientific Research and Experimental Development (SR&ED) program in relation to the “Human Resources Development Canada job grants scandal.”* The author relates the SR&ED program to the HRDC “scandal” as “different departments, same old problems” and suggests that because the SR&ED program is “little known” that it reflects the same level of potential mismanagement, such as “bureaucratic foul-ups, questionable criteria and negligible gain to Canadians as a whole” as the HRDC scheme.
The author goes on to state that “the criteria for awarding the tax credit have proved to be quite extensive” and so, to suggest the CRA would introduce more criteria and not plan on auditing the submissions to ensure the criterion was met suggests a strongly negative bias from the author. The author continues to suggest; “some proposals were submitted multiple times until they received favourable reviews. One particular project struck out three times before finding a more agreeable committee. Occasionally head office bureaucrats have over-ruled the findings of regional offices and authorized tax credits previously rejected.”** The author suggests that, like the HRDC scheme, “billions of dollars in [SR&ED] were handed out in secret, using questionable and surprisingly elastic criteria, with little supervision and to very little useful (i.e., non-political) purpose.” The author, however, does not acknowledge that the HRDC program played a very different role to that of the SR&ED program. HRDC sought to provide government jobs in existing sectors, whereas SR&ED seeks to provide companies with the means to continue to develop new knowledge and information (even if their experimentation is not always successful,) which has the potential to create new sectors that may ultimately prove more valuable to the economy.
*The HRDC program saw potentially more than $1 billion-worth of government spending in job grants go unaccounted for.15
**A claim being reviewed several times is not a common occurrence, though does happen and is often taken to tax court (as can be seen in the Tax Court of Canada Rulings section of this website).
n.a. (April 12, 2000.) The boondoggle continues. National Post. pg. A17.
November 1, 2000. Earl Viner, Opinion. Globe and Mail.
Viner argues that “it’s worrisome that … SR&ED has come under fire from the Auditor-General and a House of Commons standing committee on public accounts,” as criticism could lead to the program being reduced or eliminated and left “to the private sector.” The author goes on to state that, “many businesses entitled to tax benefits … fail to take full advantage because the principal elements of the program are extremely technical and not readily understood”. Viner argues that, “despite some bad press,” incentives (like the SR&ED program) “create better standards of living for [a country’s] citizens”, give corporations reason to move to Canada and uses the DaimlerChrysler research operation opening “a large research operation on [the Canadian] side of the Detroit River” as an example.
Viner, E. (November 1, 2000.) R&D tax breaks are not wasteful – they’re essential. Globe and Mail Online. (Accessed: October 4, 2017.) Retrieved from: https://beta.theglobeandmail.com/report-on-business/rd-tax-breaks-are-not-wasteful—theyre-essential/article770629/?ref=http://www.theglobeandmail.com&.
October 15, 2000. Kathryn May. Ottawa Citizen.
This article discusses if the SR&ED tax credit “promotes research or improves the economy.” May argues “Canada’s research and development [R&D] tax breaks are among the most generous in the world,” however Canada’s R&D spending is “the lowest of the major industrialized countries.” May refers to a review of the SR&ED program carried out by Auditor General Denis Desautels that argued: “the program cost more [“$10 billion”] than it generated in benefits [“$20 million to $55 million”].” The article references a government committee, which suggested the CRA “file an annual report with Parliament on the impact of of [sic] tax credits” and that the Department of Finance and CRA “conduct an in-depth analysis of the [SR&ED] program every five years to nail down its impact on productivity and economic growth.” John Williams, Canadian Alliance MP, argues that tax credits “tend to benefit large companies that have profits to offset, but do little to help the emerging dot.coms,” however, the article concludes that the committee’s “biggest concern” was that “larger firms seem[ed] to get preferential treatment in the handling of [SR&ED] claims.”
May, K. (October 15, 2000.) MPs question R&D tax credits: Committee bluntly asks whether government should seek other methods. Ottawa Citizen. pg. A8.
Tech community jumps to defend R&D tax breaks, 2000
April 13, 2000. Shawn McCarthy. Globe and Mail.
In this article, McCarthy highlights technology companies who have “rushed to the defence of Ottawa’s lucrative research and development [R&D] tax credit.” These actions come after the Auditor General, Denis Desautels, “questioned the economic benefits of the tax [credits]” and opposition MPs branded the tax credit program a “massive boondoggle.” McCarthy features arguments by representatives from the Canadian Advanced Technology Alliance (CATA) and the Information Technology Association of Canada (ITAC). David Paterson from CATA argues that “Canada’s poor R&D record is the result of the predominance of resource companies […] not an ineffective tax incentive.” Paterson argues, “resource companies do almost no R&D [… as they are] all foreign owned. [Foreign-owned resource companies] do their research at home, not [in Canada].” Robert Crow, vice-president of ITAC also supports the tax credit, stating “the problems of lack of clarity and poor management of the tax credit [cited by the Auditor General] are now being fixed [and the tax credit is] critical in persuading multinational companies […] to do [R&D] in Canada.”
In the article, Desautels also refers to a “1997 federal study [that] found that the R&D tax credit program resulted in only $20-million to $50-million in additional income,” however, the same study also found the tax credit “generated $1.38 in private sector investment for each dollar of tax revenue foregone.”
McCarthy, S. (April 13, 2000.) Tech community jumps to defend R&D tax breaks. Globe and Mail. pg. B3.
$5-billion in R&D tax credits bogged down in Ottawa, 2000
April 12, 2000. Alan Toulin. National Post.
This article criticizes the government’s SR&ED program in the midst of “banks and telecommunications” companies “fighting with the federal government for $5-billion in tax money in unresolved claims for scientific research.” Toulin argues the “7,680 [SR&ED claims] going back as far as 1985” are “bogging down” Canada Customs and Revenue.* Toulin compares this situation to that of the Human Resources Department Canada (HRDC)** and quotes Deborah Grey, leader of the opposition in Parliament, as stating that, “some applicants receive more tax dollars than they should” and describes the situation as a “boondoggle.” Toulin later quotes Martin Cauchon, National Revenue Minister, as stating, “there is no boondoggle in Human Resources — there is no boondoggle, as well, in [the CRA],” however the article features Denis Desautels, the Auditor-General, as saying the SR&ED program “despite attempts to reform it, consistently suffers from poor guidelines and unclear eligibility rules, leading to the disputes with corporations.” The article concludes with “a 1997 review by the Finance Department” which claimed that SR&ED had only a “marginal impact” on Canada’s wealth, generating “perhaps $20-million to $50-million” in national income and that Desautels urged the government to “re-examine its role in supporting science and technology through […] tax incentive programs.”
*The agency is now known as Canada Revenue Agency.
**See the article, ‘The boondoggle continues’, published in the same newspaper on the same day that also compares the SR&ED program to the HRDC scheme.
Toulin, A. (April 12, 2000.) $5-billion in R&D tax credits bogged down in Ottawa: Compared with HRDC fiasco: Some companies receiving more tax dollars than they should: Alliance. National Post. pg. A8.
Firms may get $2 billion tax windfall, 2000
April 12, 2000. Shaun McCarthy. Globe and Mail.
McCarthy describes an (at the time) ongoing legal challenge to the Canada Revenue Agency (CRA) policy regarding the ability of banks and telecoms to accept SR&ED credits. After having been disallowed from claiming SR&ED tax credits, a number of large banks and telecoms were taking the Canada Revenue Agency to court for an amount somewhere between $400 million and $2 billion.
The article uses the legal threat of massive payouts to criticize the administration of the SR&ED program in more general terms, accusing the CRA of politically manipulating SR&ED applications against the prior assessments by junior auditors. It also discusses a contemporaneous Auditor-General report, which criticized the CRA for leaving the SR&ED program vulnerable to legal challenge.
McCarthy, S. (April 12, 2000.) Firms may get $2billion tax windfall: R&D credit program leaves Ottawa open to challenge by banks, telecoms: Auditor-General. Globe and Mail. pg. B1.
Rules are complex for R&D tax incentives, 1999
September 27, 1999. Wayne Stone, Guest Contributor. Vancouver Sun.
In this article, Stone, a tax manager in Vancouver, highlights the SR&ED tax credit program and how it relates to British Columbia’s provincial R&D tax credits. Stone emphasizes that the SR&ED program can allow “Canadian-controlled private corporations” to file claims that “could amount to a cash refund of 45 percent of R&D costs incurred.” The article highlights the eligibility criteria for the SR&ED program and its limitations. Additionally, Stone highlights that in B.C. refundable tax credits can and “generally” amount to “10 percent of R &D costs incurred.” Stone continues to emphasize eligibility criteria for the federal SR&ED program, including that companies must show “uncertainty, advancement and content” to qualify and that projects claiming SR&ED do not need to be successful and claims that “[duplicate] the proprietary technical knowledge of a competitor” can also qualify. Stone concludes that if businesses “do not have the expertise on [their] management team” they should “engage a specialist in SR&ED tax credits” and emphasizes the importance of maintaining contemporaneous documentation.
Stone, W. (September 27, 1999.) Rules are complex for R&D tax incentives: Many Canadian-controlled private corporations are entitled to the top rate of 35 percent on the first $2 million of SR&ED expenditures incurred each year. Vancouver Sun. pg. C11.
Use subsidies to encourage high tech, 1998
March 12, 1998. T.S. Sankar, Guest Contributor. Montréal Gazette.
In this reply to a previous article by Jay Bryan, published in the Montréal Gazette on February 14, 1998, Sankar defends the government’s SR&ED program. Sankar refers to Bryan’s suggestion to “end subsidies for industrial research and development and instead cut the corporate tax rate across the board” as “short-sighted.” Sankar stresses that the SR&ED tax credits are not “tax breaks, handouts or giveaways” and that the tax credits are audited “usually with the help of an outside specialist” and that “many claims are disallowed.” Sankar argues that SR&ED is claimed “mostly from industries involved in manufacturing” and that these industries often “earn sizeable export revenue for Canada.” The piece concludes “SR&ED activity creates jobs in Canada for our science and technology graduates” and that Sankar’s wish is for more companies to “take advantage of the SR&ED program” as lower corporate tax rates “can in no way guarantee innovation or research and development” as Sankar believes that “more likely, [lower corporate tax rates would lead to] an increase in dividends for the shareholders.”
Sankar, T.S. (March 12, 1998.) Use subsidies to encourage high tech. Montréal Gazette. pg. B2.
New rules on R&D credits seen as hard on small firms, 1997
October 30, 1997. Patrick Brethour. Globe and Mail.
In this article, representatives from the Information Technology Association of Canada (ITAC), and the Canadian Advanced Technology Alliance (CATA) discuss the change to the rules for research and development (R&D) tax credits made by Revenue Canada (RC).* The new rules proposed that companies “must be able to show the precise nature of each worker’s activity within a project.” Gaylen Duncan, president and chief executive (CEO) of ITAC states in the article that the “requirement is beyond the means of most small companies operating on a shoestring budget.” Duncan continues to state that the change could “undermine not only his association’s efforts to get more small firms to apply for the tax credits but also the ability of those companies to generate new ideas and economic expansion.”
An executive director at CATA, Shirley-Ann George, also argues “the reporting rule may be too stringent for larger companies as well” and that this change could “push up the cost of applying for the credit [… to] $20,000 annually.” Krystyna Miedzybrodzka, a senior advisor with the RC counters these arguments, stating “the regulations allow for less detailed documentation, if the company in question and the tax credit being claimed are both small […] if it’s a multimillion-dollar project, we can’t just accept a handwritten note.” George, however, argues that “the more relaxed procedure for small companies and small projects […] is too vague and leaves too much latitude for auditors.” Brethour concludes the article with a statement from Paul Davidson, a CEO and company president based in Waterloo, who states that the new regulations are “tougher but […] appropriate” and that being a small company has not stopped his company from applying for the tax credits, apart from in their first three years.
*This government agency is now known as the Canada Revenue Agency.
Brethour, P. (October 20, 1997.) New rules on R&D credits seen as hard on small firms. Globe and Mail. pg. B10.
Ottawa speeds up R&D claims, 1997
April 23, 1997. Barrie McKenna. Globe and Mail.
This article highlights the role of Revenue Canada (RC) (now Canada Revenue Agency (CRA)) in speeding up the SR&ED claim process from two years to four months and reassigning, “160 of its bureaucrats involved in reviewing claims in order to develop their specialized expertise in industries such as high-technology.”
At the time of writing, RC had discovered, “compliance costs for small and mid-sized business [were] 15-times higher than average.” The review of the R&D processing procedures began in 1994 when RC was, “swamped with more than 15,000 back claims,” which included claims totalling $300m from Canada’s “Big Six” banks.
McKenna, B. (April 23, 1997.) Ottawa speeds up R&.D claims. The Globe and Mail. pg. B13.
Making exceptions to the rule; Business frowns on handouts, but not all of them 1996,
February 29, 1996. April Lindgren. Ottawa Citizen.
In this article, Lindgren discusses government subsidies and tax incentives for businesses conducting research and development (R&D) work. In the article, businesses argue whether subsidies “the kind involving cash gifts […] distort investment decisions and competition and often fail to produce results.” Lindgren states that the “Canadian aerospace industry has lobbied hard to regain some of the government aid […] cancelled in 1995,” however Jay Meyers from the Canadian Manufacturers Association stated, “many of the cancelled programs were of questionable effectiveness.” Lindgren refers to a “new technology fund” that would ” be available to the environmental technology and biotechnology sectors [and] would replace the Defence Industry Productivity Program” would also “be repayable and the government may even arrange to take a share of the profits if the product is a success.”
Members of the Canadian Advance Technology Association (CATA), however, argue against direct subsidies. Shirley-Ann George, the executive director, states that their members “are much more interested in tax incentives because any company can come forward and get them.” George argues that often subsidies “give preferential treatment to some firms over others” and that ultimately “R&D tax credits lead to profitable businesses and jobs that generate substantial tax revenue in the long run.”* Lindgren refers to Auditor General, Denis Desautels’ 1994 report that “expressed concern about the rising cost of the incentives,” however, Bob Mimeault, president of a Kanata-based company, argues that “the credits allow you to get one third more R&D resources for every dollar you put in […] when you are in your formative years and you are trying to build product, this is a definite advantage.”
*The article does not name SR&ED tax credits directly.
Lindgren, A. (February 29, 1996.) Making exceptions to the rule; Business frowns on handouts, but not all of them. Ottawa Citizen. pg. D9.
Technology called key to future, 1996
March 7, 1996. Gillian Shaw. Vancouver Sun.
This article discusses technology, in Finance Minister Paul Martin’s 1996 budget, which stated technology would receive “$270 million during the next three years.” Shaw refers to chair of the Alliance for Converging Technology, Don Tapscott’s book The Digital Economy and states, “although there’s a move to decrease government involvement in business, high tech is an area where relatively small amounts of funding can go far.” In the article, Martin refers to the 1995 SR&ED review, which found “existing income tax rules can be applied successfully to information technology SR&ED performed by all types of firms” and “promised the government [would] complete an evaluation of the SR&ED tax incentives.” Shaw also highlights that Martin announced “Technology Partnerships Canada,” however, quotes Tapscott’s opinion of the partnership as “a step in the right direction, but it has to have enough money available to make it worthwhile” and that “if you’re not talking hundreds of millions” the initiative “becomes more symbolic than a real catalyst.”
Shaw, G. (March 7, 1996.) Technology called key to future. Vancouver Sun. pg. E1.
Banks fear being left out of R&D benefits, 1996
February 29, 1996. April Lindgren. Ottawa Citizen.
This article highlights the change in the government’s eligibility rules for research and development tax credits. The change limited “the opportunity for Canada’s banks and other corporations to take advantage of the $1-billion [R&D] tax credit program” and meant these corporations could not “claim R&D tax credits for internal business management systems including personnel and accounting programs.” Executive Director of the Canadian Advanced Technology Alliance (CATA), Shirley-Ann George, states CATA “supports limiting R&D tax credits for projects used in day-to-day company operations rather than reducing tax breaks for the R&D leading to new products for export.” A director at the Canadian Bankers’ Association, Barbara Amsden, however, argues, “banks feel they do a lot of R&D and if other large corporate taxpayers are entitled to the credits, then the banks should be treated the same as any other taxpayer.” The article concludes with a quote from Gord Harris, a management consultant, who also argues that “it doesn’t go down well in a political sense to see a very profitable corporation writing off large amounts for R&D […] you should take a look at some telecommunications companies. Their claims are huge and they are very profitable, but nobody is worried about them.”
Lindgren, A. (February 29, 1996.) Banks fear being left out of R&D benefits. Ottawa Citizen. pg. D10.
Backlog of R&D claims grows, 1995
March 15, 1995. Alan Freeman. Globe and Mail.
In this article Freeman highlights the backlog of claims made to Revenue Canada (RC)* for “research and development [R&D] tax credits totalling $1.6-billion.” Freeman quotes Associate Deputy Minister at RC, Ian Bennett as stating that “the actual cost […] of the back claims will be between one-quarter and one-third less than the $1.6-billion because not all claims will be validated.” Bennett later emphasizes that the money from the backlog would have been used to create “a lot” of jobs and that “[RC] will conduct a financial and scientific audit of every claim […] and no funds are paid out until the audits are completed.” Freeman emphasizes the Auditor General, Denis Desautels’ claim that “the backlog figure is higher than $1.2-billion.” The article highlights that this backlog may be due to the time limit imposed on the tax credits in 1994. Previously, “companies could seek credits for R&D conducted as long ago as 1985.” Desautels also suggests the popularity of the program is “driven by taxpayer demand because every taxpayer who complies with the tax rules for the credits is entitled to benefits [… resulting in] high levels of eligible spending [which] result in high costs.”
The article also highlights changes Finance Minister Paul Martin announced to the R&D tax credit program. Included in these changes were “the rules affecting computer software and a moratorium on new tax credit claims by financial institutions and investment dealers for software development work.” Software was a particular focus among the changes as Deputy Finance Minister David Dodge suggests, as it was “difficult […] to monitor because of […] the ‘grey area’ between real development work in software and ordinary business applications of computer technology.”**
*This government agency is now known as the Canada Revenue Agency (CRA)
**Throughout the article Freeman refers to the SR&ED tax credit just as “R&D tax credits.”
Freeman, A. (March 15, 1995.) Backlog of R&D claims grows. Globe and Mail. pg. B4.
Banks ask millions in R&D credits, 1994
December 15, 1994. Alan Freeman and Barrie McKenna. Globe and Mail
This article describes the sudden discovery by a number of Canadian banks that their computer research over the course of the past eight years was eligible for unclaimed SR&ED credits (it is no longer possible to claim SR&ED credits for research performed so far in the past). As a result, all of these institutions decided to apply for $300 million in SR&ED credits at the same time. Since the sum of money is so large, it is understandable that this would cause a bit of consternation in the press.
This article forecasts some of the debates that would be to come over the SR&ED program, with the authors addressing technical eligibility–they describe research into “developing an on-line system to validate credit information” as “an everyday banking activity.” The banks counter by declaring their work to be valid research, arguing that if it weren’t valid, they would not be receiving the tax credits. Ultimately, in response to this controversy, Paul Martin would step in to declare that banks were ineligible for information technology tax credits.
Freeman, A., & McKenna, B. (1994, Dec 15). Banks ask millions in R&D credits. The Globe and Mail. pg. A1.
Misuse threatens R&D, firms say, 1994
December 17, 1994. Alan Freeman and Barrie McKenna. Globe and Mail.
In a follow up to the article, above “Banks ask millions in R&D credits,” McKenna discusses the reaction to the raft of bank-related SR&ED applications from the perspective of Canadian high-tech firms. These firms, who had been collecting SR&ED tax credits regularly for years, were very concerned about the effects of a backlash against the program due to the recent bank applications. This article highlights some of the tensions that have driven debate about the SR&ED program for years. At the same time as seeking to create a program that supports innovation, the government must apply their rules fairly, which may mean distributing income tax credits to companies that some say are not eligible.
This article also addresses the ongoing debate regarding the value of indirect funding (tax credits) compared to that of direct funding, through targeted grants. They interview a professor who, at the same time as arguing that tax credits are ineffective for supporting innovation, argues that the government also has a bad history with respect to choosing direct funding recipients.
Freeman, A. and McKenna, B. (December 17, 1994.) Misuse threatens R&D, firms say. The Globe and Mail. pg. B7.
R&D tax credit a fiasco waiting to happen, 1994
December 16, 1994. Terrence Corcoran. Globe and Mail.
This article highlights that, at the time of writing, chartered banks were making claims that “could exceed $300-million” under the SR&ED program. Corcoran argues that the SR&ED program is one of the “most generous R&D corporate giveaways in the world,” however, that it is unclear “what economic returns are Canadians getting from the $7-billion Ottawa now spends supporting private and public research.” (At the time of writing this figure was related to the “entire federal support for science, technology and research” as the amount spent on SR&ED was $1-billion.)
The author believes the “economic definition” of research and development (R&D) is “vague and conceptual,” and highlights that Deloitte and Touche “churned out newsletters urging their clients to board the bandwagon.” Corcoran suggests that the SR&ED program is inherently flawed and has led to a “succession of funding disasters” and goes on to state, “the use of tax credits to stimulate R&D was always fraught with the risk of abuse and confusion.” The author does not address that the Canadian banking system is one of the more advanced banking systems in the world, nor substantiate the hype that this would be an area that is higher-risk of abuse and confusion than other parts of the Income Tax Act.
Corcoran, T. (1994, Dec 16.) R&D tax credit a fiasco waiting to happen. The Globe and Mail. pg. B2.
You don’t need a laboratory to do R&D, 1994
December 15, 1994. Alan Freeman and Barrie McKenna. Globe and Mail.
In this article, Freeman and McKenna write:
“[W]hen it comes to claiming an R&D tax credit from the federal government, the work doesn’t have to be done in a laboratory or by a scientist seeking a Nobel Prize. The work can be done in an office, or on the floor of a manufacturing plant, and can involve not just inventions but also improvements on existing products and processes.”
The rest of the article goes into detail about why this is a wasteful state of affairs. It seems that the authors have very rigid ideas about what research and development is, and are offended by the idea that a company without a laboratory might make use of research and development tax credits. Others may argue that one of the strengths of the SR&ED program is that it is not confined to a laboratory space and that it sets out broad criteria encompassing the variety of ways that R&D takes place across a variety of industries and contexts.
Freeman, A., & McKenna, B. (1994, Dec 15). You don’t need a laboratory to do R&D. The Globe and Mail. pg. A2.
Canada’s future demands some business subsidies, 1994
December 8, 1994. David Crane. Toronto Star.
In this article, Crane discusses subsidies for business and how these could benefit research and development (R&D) in Canada. Crane uses the case of Ballard Power Systems, “a Vancouver company whose fuel-cell technology may provide a major breakthrough in creating non-polluting cars, buses and trucks,” to highlight the need, in some industries, for additional R&D support. Crane suggests “Ballard would […] have to sell control to foreign investors who would move the company to […] where government funding would be available” should Canada abolish business subsidies, including tax incentives. Crane highlights that “it’s always easy to find examples of misspent subsidies doled out to keep failing companies alive or to underwrite projects that should be able to stand on their own feet” but emphasizes “this doesn’t mean we should have no subsidies.” Crane refers to a paper by Industry Minister, John Manley, Building a More Innovative Economy* that “companies undertaking R&D cannot keep all of the benefits for themselves” and that “there may be a role for government to invest on the grounds that other firms, sectors, and indeed the public at large will derive substantial benefits.” Crane concludes, “the real issue […] is just how to best design [strategic government subsidy] programs.”
Crane, D. (December 8, 1994.) Canada’s future demands some business subsidies. Toronto Star. pg. B2.
Ottawa powerless as firms told how to reap R&D tax credits, 1994
December 16, 1994. Alan Freeman and Barrie McKenna. Globe and Mail.
This article explores the business practices of SR&ED consultants, which according to Freeman and McKenna, veer uncomfortably into the corrupt. They interview a SR&ED consultant who references “trial-and-error, effectively,” which would not pass muster with today’s CRA. While it’s true that there was, and is, evidence, of unscrupulous practices by some SR&ED consultants, some of the evidence–similar to the evidence he presents in the article “You don’t need a laboratory to do R&D,” seems to rely on the authors’ own, superficial, ideal of what science is.
For instance, the authors cite a case of a restaurant developing strawberry-flavoured beer as being evidence of misplacement of SR&ED funds, but it seems a little bit odd that the food-related research is somehow lesser science than other kinds of research. Without information about the process, in particular, it’s impossible to say whether the authors are right or wrong to criticize this instance, but the sheer fact that the product being developed is a beer flavour is poor evidence that it is not SR&ED.
McKenna, B., & Freeman, A. (1994, Dec 16.) Ottawa powerless as firms told how to reap R&D tax credits. The Globe and Mail. pg. A1.
Tories Tinker With Income Tax Act, 1993
May 2, 1993. David Richards. Calgary Herald.
In this article, Richards, a chartered accountant, discusses the changes to the SR&ED program announced in Finance Minister Don Mazankowski’s April 1993 budget. The first changes listed include the extension “on a sliding scale” of SR&ED for “companies with taxable incomes between $200,000 and $400,000” and the removal of the “percentage limitation on utilization of ITC claims in any given taxation year.” Richards also highlights the introduction of “an enhanced depreciation write-off on office equipment” and “a proposal to allow patents and licences to be written off on a 25 percent declining balance basis.” Richards describes the changes as a “significant improvement” as the “current writeoff” only allows the write-off of “three-quarters of the capital cost at seven percent per year.”
Richards continues to describe other changes to the program, including similar changes to “payments made to non-residents for the right to use patented information or information concerning scientific experiments” and “payments for use of computer software,” which would be “exempt from withholding tax.” The last change to be highlighted relates to the Income Tax Act and the “payment of quarterly instalments”, which would mean a reduction in the installment requirements for “many low income taxpayers and increase the number of high-income earners.” The article concludes that the “the tax proposals are positive initiatives” and so should not be affected by the election held later that year.
Richards, D. (May 2, 1993.) Tories Tinker with Income Tax. Calgary Herald. pg. C9.
‘Technology Doctors’ Give Firms Shot Of Expertise, 1993
January 3, 1993. Gordon Jaremko, Calgary Herald.
This article examines two of Canada’s research and development (R&D) government funding programs: the Industrial Research Assistance Program (IRAP) and Scientific Research and Experimental Development (SR&ED). Jaremko highlights the impact the “$8 million yearly Alberta budget” for IRAP has had on the industrial sector and quotes Andrew Gilliland (who the author deems a “technology doctor”), the regional director for IRAP, when discussing that the majority of IRAP recipients receive “$15,000 grants.” Jaremko emphasizes that “[Canadians would] be surprised at the amount of leverage we can get out of that small a contribution” and states that the “only restriction [is] IRAP concentrates on firms with less than 500 employees.”
Jaremko goes on to discuss the SR&ED tax credit and describes it as “the strictly audited descendent of Ottawa`s notorious, uncontrolled, multi-billion-dollar headache of the mid-’80s, scientific research tax credits.”* Jaremko, however, goes on to list the benefits of the SR&ED program, and quotes Raj Singhal, a Calgary engineer, who states that “companies or inventors don’t have to be working on proven ideas to qualify for [SR&ED].” Jaremko relates these government funding initiatives to Alberta’s traditional industries, such as “resource extraction” and other industries “ranging from computers and pharmaceuticals to farm implements and livestock breeding.” Jaremko concludes with a quote from Gilliland who states that government funding agencies are “seeing a change in industry, in a new understanding of the need to apply technology” to areas related to more traditional industry, such as the “oilpatch” and in resource extraction.
*There is more information on the scientific research tax credits and associated challenges in news article summaries from 1984.
Jaremko, G. (January 3, 1993.) ‘Technology Doctors` Give Firms Shot Of Expertise. Calgary Herald. pg. B2.
Canadian firms are sitting on millions of dollars in unclaimed R&D tax credits, 1993
November 19, 1993. Peter Hadekel. Montréal Gazette.
In this article Hadekel highlights the benefits of the scientific research and experimental development (SR&ED) tax credits and discusses why some companies may not be claiming tax credits. Hadekel refers to information provided by Darryl Kirsh, a Montréal-based consultant who suggests that, “federal tax incentives make a dollar’s worth of R&D cheaper in Canada than in any other major industrialized nation” and that “through laziness or sheer incompetence [Canadian companies] are sitting on several hundred million dollars worth of unclaimed R&D tax credits.” Kirsh speculates “about a third of eligible companies have neither the urge nor the inclination to claim the money [from tax credits]” and that companies may not file a claim for SR&ED as if their “accountant doesn’t recommend [filing a claim] chances are it won’t happen.” Jacek Warda, “a Conference Board of Canada researcher who monitors R&D spending and benefits,” highlights “increasing numbers of American technology and manufacturing companies were considering establishing facilities in Canada to cash in [on tax credits].”
Hadekel, P. (November 19, 1993.) Canadian firms are sitting on millions of dollars in unclaimed R&D tax credits. Montréal Gazette. pg. F1.
December 15, 1993. Howard Dickson. Toronto Star.
In this article, Dickson defends and encourages more spending on research and development (R&D), and highlights the return received from investment in R&D. Dickson states, “no other investment returns as certainly as does R&D” and quotes an Economic Council of Canada survey commissioned in 1992 that “highlights just how powerful R&D can be as an investment. Results indicate a 10-to-40 percent rate of return for domestic R&D […] The same survey estimated the social rate of return of R&D, which is the economic spillover into industrial and service sectors, at 50 to 100 percent in excess of the initial rates of return.” This highlighted that R&D in Canada would generate 10 to 40 cents, and the “social” return on R&D investment would be 50 cents, for every one dollar spent.
Dickson emphasizes that “Canada must quickly shift from a limited, resource-based economy to an unlimited ‘new’ economy founded on intellectual power” and is skeptical of the government’s commitment due to its poor history in funding initiatives to encourage R&D. Dickson states, “Canada has not invested wisely over the past decade” and that at the time, Canada’s spending (as a percentage of Gross Domestic Product) on R&D was, on “average over the last decade […] approximately 1.41 percent […] at the bottom of G-7 countries, well behind the next highest, the Netherlands at 2.11 percent, and far behind Japan, which leads with 2.87 percent.”* Dickson, however, is also critical of the lack of business-financed R&D and highlights that the “40.9 percent” of R&D expenditure financed by industry in Canada is “the poorest showing of all G-7 countries” and this chronic under-funding from both government and industry led to a “severe warning” from the “Paris- based Organization for Economic Co-operation and Development (OECD),” which stated if Canada “ever expect[s] to participate in the global economy [Canada has] to increase [its] investment in R&D and in technology.”
*It is important to note that this figure has not increased dramatically – in 2014 Canada spent 1.61 percent of its GDP on R&D 4 over 20 years after this article was published.
Dickson, H. (December 15, 1993.) Spending on research is money well spent. Toronto Star. pg. A27.
Tax credit changes to plug $230 million into research, 1992
November 21, 1992. David Smith. Vancouver Sun.
This article discusses the changes to Canada’s research and development (R&D) program regarding overheads and capital expenditures. Smith quotes Joanna Hausch, senior manager in tax at Deloitte & Touche in Vancouver who stated the changes were “very positive,” however Hausch stated the government had “added some administrative complexity into the new rules.”
This “complexity” related to the introduction of the “proxy amount” that was introduced and proposed ITCs could be earned on “65 percent of direct salaries and wages, excluding benefits” and on capital assets used “more than 50 percent and less than 90 percent for research.” This contrasted with the existing system at the time the article was written which allowed companies to claim for capital equipment used more than “90 percent” of the time. This meant that shared-use equipment that was used for both research activities and non-R&D activities would now come under scrutiny and would “affect everyone who is doing R&D” as they would have to split the time equipment was used for both R&D and non-R&D activities.
Smith, D. (November 21, 1992.) Tax credit changes to plug $230 million into research. Vancouver Sun. pg. F2.
Canada loses R&D race, study shows, 1991
April 29, 1991. David Crane. Toronto Star.
This article examines what Crane believed to be some of the reasons for Canada’s “lagging R&D performance.” Crane refers to a report prepared by Prime Minister Brian Mulroney, Science and Technology, Innovation and National Prosperity: The Need for Canada to Change Course. The report focuses on the industries of Canada and their lack of research and development (R&D) spending as Crane states, “Canadian industry is badly positioned to face the future in a world where other countries are stepping up the technological race.” Crane highlights, “if the Canadian auto industry-parts and assemblers had a ratio of R&D spending to sales equal to the average of the industrial countries, R&D spending in 1987 would have been $910 million, instead of the $90 million actually spent in Canada.” Crane goes on to quote “a task force of members of the National Advisory Board on Science and Technology” and emphasizes similar discrepancies “between actual spending and the industrial country average are found in the chemical industry, in pharamecuticals [sic] and in electrical machinery.”
Reasons listed for the low-spend in R&D include “Canada’s economy [being] dominated by industries with intrinsically low ratios of R&D spending” and that Canada’s manufacturing companies “tend to perform less R&D than similar industries in other industrial nations.” The task force also suggests it was “high cost of capital in Canada -debt and equity,” or Canadian “industrial structure and a high degree of foreign ownership in the manufacturing sector,” or that Canada “does not have a good environment for R&D.” The task force believes “Canada may lack the clusters of trained people and support activities, as well as favorable tax policies.” The author does not make direct reference to the SR&ED program, nor do they include any recommendations on how the “environment for R&D” could be improved, but concludes that the pattern of low spending in R&D is “changing very little.”
Crane, D. (April 29, 1991.) Canada loses R&D race, study shows. Toronto Star. Pg. B2.
Canada’s R&D lagging despite tax credits, 1990
June 20, 1990. Drew Fagan. Globe and Mail.
In this article, Fagan is critical of the lack of spending on research and development (R&D) tax incentives for R&D has spurred. Fagan states Canada is lagging behind “its competitors […] despite having some of the most generous tax incentives in the world.” The article refers to a Conference Board of Canada report that acknowledged the high spend in R&D tax incentives and refers to “a similar study performed in 1981,” which found that “Canada provided the most generous tax incentives” for R&D. Fagan notes that since 1981* “according to Statistics Canada, domestic industrial companies have fallen further behind international competitors in their financial commitment to [R&D].” Fagan highlights that in 1982 “Canadian corporations spent […] 0.7 percent” of gross domestic product (GDP) on R&D, however, this figure stayed consistent until 1987 (“the last year for which statistics are available”).
Fagan quotes Prime Minister Brian Mulroney in his May 1990 budget speech as indicating he “placed some of the blame for Canada’s poor performance [in R&D] on the manufacturing sector.” Mulroney stated “97 percent of manufacturing companies perform no [R&D]” and contrasts this with the “75 percent of [Canadian] high-technology firms” who did perform R&D.** Laurent Thibault, president at the time of writing of the Canadian Manufacturers Association, concludes that the reason for a lack of spending on R&D by the manufacturing industry was due to “high interest rates and a low dollar, which [hurt] exports.”
*It is important to note that the SR&ED tax credit program was only introduced in 1987, however, the study referred to here may be referring to other tax credits related to scientific research and experimental development, as discussed in Scientific Research And Experimental Development: Tax Policy, a paper by Odette Madore.5
**It is also important to note that there are no sources mentioned in the article, and the transcript of the speech is not available online.
Fagan, D. (June 20, 1990.) Canada’s R&D lagging despite tax credits. Globe and Mail. pg. B5.
Canada skimps on R&D spending, 1990
March 4, 1990. David Crane. Toronto Star.
In this article, Crane is critical of sustained governmental cuts to scientific and technological research and development (R&D) spending. Crane examines the financial support offered to Canadian companies, by the federal government, to conduct R&D work. The article highlights that Finance Minister Michael Wilson “cut science and technology support by about $40 million” and that during the course of Wilson’s time in tenure “since 1984-1985” Crane stated, “total federal spending on research and development, including support for universities and industry, has grown barely 1 percent, after inflation.” The article also highlights business spending on R&D and references a Conference Board of Canada survey that stated, “after catch-up gains of 10 percent in 1988 and 7.8 percent in 1989, corporations plan below-inflation growth in spending through to 1994.” The survey stated that there was a difficulty for businesses to find “skilled R&D engineers and scientists,” which Crane highlights as something that is hindered directly by cuts to universities, as these are the “training ground for Canada’s scientists and engineers.”
The article discusses an appearance made by John Roth (executive vice-president of telecommunications manufacturer) before a House of Commons committee in which Roth emphasized a “huge handicap facing Canadian high-tech companies because the cost of capital is so high while R&D support is too low.” Roth continues that a company in Canada could borrow $275 million to create a $1 billion asset, whereas in the U.S. “you could afford to borrow $400 million […] And in Japan, with its low-interest rates, ‘you could borrow $675 million’,” which led to Canadian businesses taking fewer risks and being less “aggressive” with their R&D endeavours and therefore were less likely to develop new products. Crane then highlights that Wilson “slashed the value of the incentive by restricting it to 75 percent of the tax otherwise payable” and had originally wanted to limit the tax credit ” to just 50 percent of the tax otherwise payable.” Roth argued the tax credit was “‘useless for small, start-up companies and to companies losing money” and comes out in support of direct government funding stating, “AT&T had a $30 million gallium arsenide facility built for them by a DARPA [U.S. Department of Defense Advanced Research Projects Agency] contract. We had to build our own $30 million facility – it just opened (in January) – and we built it at a time when even the capital was not R&D-tax eligible.” The article concludes with Roy Aitken, executive vice-president of a mining company based in Toronto) stating before the same parliamentary committee that to encourage R&D, the Canadian government should seek to “improve the investment tax credit (ITC) for R&D” with Eric Bloch, then director of the National Science Foundation, stating that investment in “core disciplines and research facilities” and “a large investment in human resource development through education and research initiation” are the “cornerstone of increased national productivity and economic competitiveness.”
Crane, D. (March 4, 1990.) Canada skimps on R&D spending. Toronto Star. pg. F1. Business Today.
Software group urges firms to seek R & D tax credits, 1988
July 8, 1988. Mike Urlocker. Ottawa Citizen.
This article examines opposing views by industry professionals towards Canada’s R&D tax credits. The first opinion featured is of Joe Koenig, president of the Ontario Software Development Association and Interactive Image Technologies Inc. “an educational software company.” In the article, Koenig is quoted as stating, “70 percent of software developers are missing out on the credits, which allow companies to be paid back up to 35 percent of their research costs” and that one of the reasons for this may be due to many software companies consisting of “three or four employees who either aren’t familiar with the credits or whose accountants are unaware.” Koenig acknowledges “firms that applied for refunds may have abandoned the program because of delays in receiving payments or disagreements over [Canada Revenue Agency]’s auditing process.” Koenig, however, ultimately comes out in support of the tax credits by stating, “the amount of money in lost tax credits may not seem large but the savings could be critical for a small company in the early stages of research and development.” In almost direct opposition to this view, the second opinion comes from Lorne Bowerman, president of R & L Microservice Inc. with five employees. Bowerman claimed he “didn’t need ‘outside help’ to be profitable” and “the amount of paperwork needed to apply for the tax credits outweigh[ed] the payout.” The final opinion is also in contrast to Bowerman’s, as Richard Benneworth, vice-president of Zanthe Information Inc. with 35 employees, whose “firm applied ‘religiously’ for the tax credits every year” stated, “once you’ve done it the first time, it’s not so bad.” The article concludes with government acknowledgement that “small companies might not apply for the credits,” however state that they did not know the extent of the issue and that “companies reported a variety of reasons for not applying.”
Urlocker, M. (July 8, 1988.) Software group urges firms to seek R & D tax credits. Ottawa Citizen. pg. D9.
Let’s set corporate tax to support research, 1988
February 9, 1988. John Evans. Toronto Star.
In this article Evans (president and chief executive officer of a biopharmaceuticals company in Toronto) proposes how companies can become “more involved in R&D.” Evans’ suggestions focus on encouraging industries that were not already investing in R&D, to do so. He stated, “only 2 percent of Canadian companies do R&D and two-thirds of the R&D is carried out by less than 7 percent of that group” and references Robert Solow (awarded the Nobel prize in 1986 for work “establishing that technology is at least as important as capital, labour and resources in determining the level of economic growth”) in that one way to get the other 98 percent to “develop technological capability to meet their needs” would be to establish an “R&D levy of about 1-2 percent of pre-tax profits on all corporations with an appropriate floor to exclude corner store ‘operations’.” Evans also suggests that “incentives should be offered to industry, universities and technical colleges to expand greatly specialized course work and on-the-job retraining to assist workers to cope with technological change” in order to further encourage companies and industries that were not then investing in R&D to do so.
Additionally, Evans encourages firms to “enter strategic alliances for joint product and technology development and R&D consortia including several industries and university research groups.”* Evans concludes that he recognizes that “tax levies for a specific purpose have, in principle, been taboo with finance departments since the Napoleonic era,” however, much like is mentioned in Canada on sidelines so far in high-tech race article from the Star in January 1987 (summarized above) – there needed to be a shift in attitude towards R&D in Canada and so, ” why should finance departments be exempted?”
*Interestingly, in 2017 – 29 years after Evans’ article was published – the Canadian government introduced the Superclusters Initiative with the purpose of encouraging strategic alliances.
Evans, J. (February 9, 1988.) Let’s set corporate tax to support research. Toronto Star. pg. A17.
Buildings are no longer eligible for R&D tax credits, 1987
June 19, 1987. Andrew McIntosh. Globe and Mail.
In this article, McIntosh discusses changes to the research and development (R&D) tax credits. The changes meant that “capital cost allowances for passenger vehicles [were] limited to $20,000 and expenditures on building purchases, construction or rentals […] no longer qualify for [the tax credit].” The change in the criteria was expected to “generate $110-million in extra revenue between 1988 and 1992” as it meant that “a company that constructs, buys or rents a building in which it will do [R&D] may no longer write off the expense unless [the company] bought the building or will occupy it before 1990 [… and] capital expenditures on buildings no longer qualify for the 20 percent R&D tax credit.”
MacIntosh, A. (1987, Jun 19.) Buildings are no longer eligible for R&D tax credits. The Globe and Mail. pg. A8.
Canada on sidelines so far in high-tech race, 1987
January 21, 1987. David Crane. Toronto Star.
In this article, Crane discusses the government’s response to Canada’s research and innovation industries. Crane views the scientific and technological industries as important to Canada’s industrial success, in the wake of other countries moving into traditional manufacturing. The article, however, is apprehensive of Canada’s ability to improve standards in research and development (R&D) and states, “while other countries are developing powerful computer chips, miracle drugs and amazing new materials, Canada is largely sitting on the sidelines.” Crane refers to “two secret federal documents” that “show there’s a clear understanding in Ottawa that Canada’s backwardness in the high-tech world poses a grave threat to [Canada’s] economic future.” One document he states is from the “Privy Council Office” that states Canada must “invest in science and technology, encourage innovation and instil [sic] a spirit of entrepreneurial dynamism within the society as a whole.” The article, however, then references a cabinet document prepared under Science Minister Frank Oberle that is critical of Canadian business’ “failure to invest in research and development (R&D) and their unwillingness to put money into the support of Canadian universities” as well as the government’s own “modest” spending on science and technology, stating the Canadian government spent “proportionately less on R&D than governments of other industrial countries,” which (in 1987) was “just 1.3 percent of its Gross National Product […] compared with … the U.S., Japan, Germany and Sweden, which all spend 2.5 percent or more.”
Crane continues to outline where the “lagging effort in R&D” began and proposes that it predates the election of [then] Prime Minister Brian Mulroney in 1984. Crane suggests, during the majority of his time in office, Pierre Trudeau [1968 – 1979 and 1980 – 1984] “did little to bolster Canada’s R&D effort” and that it was “only in his final years in office that Trudeau began to increase support.” It was under Mulroney and Finance Minister Michael Wilson that “the flawed but fixable scientific research tax credit was wiped out […] drying up business funds available for R&D.”* The article lists initiatives that had their funding cut or were abandoned, including “the National Research Council had its budget cut from $520 million in 1984-85 to $398 million in 1986-87” in which its “most important industry support program was slightly reduced instead of being increased to keep up with inflation,” the “proposed Canadian Microelectronics Corporation Research Centres – was killed” and “the main agency that funds the training of Canada’s future science and engineering research and equipment for university research laboratories, the Natural Sciences and Engineering Research Council, was told that its budget would be cut.” In response to “widespread criticism” of these measures, the government promised to “create a National Advisory Board on Industrial Technology,” however, the article concludes that (at the time it was written) “Mulroney’s advisory board has still not been appointed” and so, “if [Canada] fail[s] to build that new economy, the government will have to spend much more supporting unemployed Canadians and will have a much smaller base from which to collect taxes. That means future deficits will be even bigger, but there will be less chance of paying them off.”
*It is worth noting that it was under Trudeau’s government that the scientific research tax credit (SRTC) was introduced in February 1984, whereas Mulroney was only elected in September 1984.
Crane, D. (1987, Jan 21). Canada on sidelines so far in high-tech race. Toronto Star, Pg A24. (1971-2014). pg. A24.
Tax reform plans seen discouraging critical research, 1987
August 29, 1987. George Brett. Toronto Star.
In this article, Brett references a “joint brief” brought to the House of Commons standing committee on finance and economic affairs by a group of organizations that represented “more than 700 companies and 210,000 employees doing more than 80 percent of Canada’s private-sector R&D,” including: “The Information Technology Association of Canada, the Electrical and Electronic Manufacturers Association of Canada, the Canadian Advanced Technology Association, the Canadian Association of Data and Professional Service Organizations and the Aerospace Industry Association of Canada.”
The group criticized the then Finance Minister, Michael Wilson’s, tax reform plans* and stated the Canadian federal government did “not offer the same level of R&D grants, (defence) contracts or technological transfer mechanisms from government R&D available elsewhere.” The groups claimed Wilson’s reforms could “‘leave roughly 40 percent of the R&D performed by Canada’s high-tech companies’ non-deductible” and concluded that, ultimately, this would “place companies manufacturing in Canada with related distribution companies at a major disadvantage when competing with importers who trade with unrelated suppliers.”
*As referenced in previous Toronto Star articles from 1987, which included cuts to R&D.
Brett, G. (1987. August 29). Tax reform plans seen discouraging critical research. Toronto Star, pg. C1. Business Today.
How Wilson’s tax reform plan undercuts high-tech industries, 1987
September 5, 1987. David Crane. Toronto Star.
In this article Crane is critical of the then Mulroney government’s actions towards research and development (R&D) – on one hand, they recognized the importance of “high-tech industries” and on the other, they continued to reduce “incentives available for business R&D.” Crane states, “high-tech industries and the science and technology community in our universities that supports them seem to have been in constant battle with Prime Minister Brian Mulroney and his government almost from the day the Progressive Conservatives were sworn into office [in 1984].” Crane suggests that then Finance Minister Michael Wilson is “making it more expensive for Canadian companies to carry out needed innovation for new products and services through R&D.” Crane believed “Wilson’s reasons [were] understandable” as Wilson intended to “create a corporate tax system that treats all types of businesses alike and that offsets the loss of tax incentives with a lower overall corporate tax rate.” The reduction in support for R&D led to “five of Canada’s high-tech industry associations […] the Canadian Advanced Technology Association, the Canadian Association of Data and Professional Service Organizations, the Aerospace Industries Association of Canada, the Electrical and Electronic Manufacturers’ Association of Canada, and the Information Technology Association of Canada,” which at the time claimed to “conduct more than 80 percent of all the private-sector R&D in Canada” to form an alliance to “get Wilson to rethink” his plans to limit “investment tax credits for R&D,” which were planned to cut the “amount of qualified research expenditures receiving usable support from investment tax credits” in half.
These associations acknowledged that tax support in Canada for R&D was “more generous than U.S. support for its industry” and the article references a 1986 study that estimated “tax incentives accounted for 8 percent of the costs of industrial R&D in Canada, compared to 7 percent in the U.S. and 6 percent in West Germany,” however, the article continues to highlight that at the time the article was written, other countries provided additional support for R&D through “direct grants and other forms of assistance” that accounted for “33 percent of the cost of industrial R&D performed in the U.S. and 18 percent in West Germany, compared to 12 percent in Canada.” The article concludes that while the Mulroney government had taken some positive measures, including the establishment of “a National Advisory Board on Science and Technology” and organizing a “new Department of Industry, Science and Technology,” ultimately the government were not doing enough to support R&D and that the “dispute between the government and the high-tech industries over tax policy once again underlines the lack of a coherent national strategy to develop our industries for the future.”
Crane, D. (1987, September 5). How Wilson’s tax reform plan undercuts high-tech industries. Toronto Star. pg. B2. INSIGHT.
R and D regulations held threat to industry, 1986
June 20, 1986. Unknown Author. Globe and Mail.
The article examines the federal government’s plans at the time to “define rules for research and development tax deductions.” The article features statements from the Canadian Advanced Technology Association (CATA) and J.E. Benson, then-president of the Electrical and Electronic Manufacturers Association of Canada (now the Electrical Equipment Manufacturers Association of Canada) (EEMAC) who were critical of the government’s “secrecy in this process” relating to a “panel of outside experts” whose “meetings have been closed and industry was given only a single shot to tell the Government what it wants.”
The changes discussed in the article relate to the Revenue Department’s “plans to develop new technical guidelines to define which corporate expenditures would qualify for federal R and D tax credits.” The announcement of these plans “coincided with a massive federal audit of companies claiming the credits,” which was launched as a result of the government spending more than $3-billion in what it believed would be a $200-million program.
Unknown Author. (June 20, 1986.) R and D regulations held threat to industry. The Globe and Mail (1936-Current) pg. B11..
Tax help on the way for the R&D, 1984
February 14, 1984. Gordon Riehl. Globe and Mail.
[Important: The SRTCs were replaced by the SR&ED program in 1986, with the loopholes described below eliminated.]
In this article, Riehl discusses the SRTC and how companies can claim it. Riehl writes, “Revenue Canada will be issuing a special pamphlet to help taxpayers properly claim the new [SRTC] when filling out their 1983 tax returns” as “the returns were printed too early to accommodate the credit.” Riehl explains that the SRTC only received “legal sanction” in January 1984 and highlights that the SRTCs are available “on special shares, debt or scientific research financing contracts issued by companies undertaking research and development,” that tax credits acquired “before Feb. 29 can be applied against 1983 taxes payable” and that “any unused balance can be carried back to 1982.”
Riehl highlights that Québec was not then part of the SRTC program, however, Québec had stated it “would participate in the program.” In 1984, the tax credit in Québec was due to be “25 percent… against Quebec provincial tax payable,” which would make the total credit worth “53.39 percent when combined with the federal portion of the credit, which is 28.39 percent for Quebec residents.”
Gordon, R. Special to The Globe,and Mail. (1984, Feb 14). Tax help on the way for R & D. The Globe and Mail (1936-Current). pg. B9.
Revenue Canada takes steps to plug R and D loophole, 1984
February 17, 1984. Allan Robinson. Globe and Mail.[Important: The SRTCs were replaced by the SR&ED program in 1986, with the loopholes described below eliminated.]
Robinson examines the loopholes in the Scientific Research Tax Credit (SRTC) program, quoting Jack Bernstein (then tax partner at then chartered accountancy firm, Laventhol and Horwath) as stating, “hundreds of millions of dollars have gone into the R and D tax shelters.” The loophole “allowed investors to defer tax payments paid by quarterly instalments” and lead “investor returns to shrink from 10 percent to 2.5 percent and lower.”
Robinson explains that “the scientific research tax credit” (SRTC) allowed companies to “transfer R and D deductions they cannot use to investors” and in turn, investors could “claim a tax credit equal to about 50 percent of their investment.” This then introduced the possibility for investors to reduce their taxes by “nominal amounts by applying the R and D tax credits […] to eliminate instalment payments required on their 1984 taxes, thereby gaining use of those funds” until they filed their tax returns. Robinson continues to highlight that “many of the R and D tax shelter deals are private” and that in these cases “the investor receives the tax credit equal to about 50 percent of the investment, and the company pays the investor the balance plus a premium shortly thereafter. Canada Revenue (now Canada Revenue Agency (CRA)) proposed, “future tax instalment payments must be based on taxes payable before the deduction of R and D tax credits.”
Robinson, A. (1984, Feb 17). Revenue Canada takes steps to plug R and D loophole. The Globe and Mail (1936-Current). pg. B6.
Firms still draining revenue through R and D credit, 1984
November 27, 1984. Linda McQuaig. Globe and Mail.
[Important: The SRTCs were replaced by the SR&ED program in 1986, with the loopholes described below eliminated.]
In this article, McQuaig investigates the “quick flip,” which was an aspect of the Scientific Research Tax Credit (SRTC) when it was introduced in 1984 that was used as a loophole for investors. The loophole “allowed the investor to qualify for a tax break by simply carrying out a high-speed financial transaction that was virtually risk-free.” McQuaig goes on to explain, “companies were entitled to a 50 percent tax credit on money spent on R and D” McQuaig continues, “if [the company] were unable to take advantage of this break themselves, usually because they were already paying little to no tax, they could sell the tax break.” This effectively resulted in investors being able to give for example, “$100,000” to a company and “immediately get back $50,000 plus a tax credit worth $50,000” and “a premium bonus from the R and D company, ranging anywhere from 2 to 12 per cent,” which depended on how quickly the company needed the money. This meant, however, “the company would have to carry out a full $100,000 worth of R and D to qualify for the $50,000 tax credit [the company] had just sold” and “if it failed to do so, it would be liable to pay tax.”
The SRTC had cost the “federal treasury between $1.2-billion and $1.5-billion in lost taxes since it was introduced” in January 1984. Canada Revenue (CR) (now the Canada Revenue Agency (CRA)) sought to curb this “unexpectedly high loss” by imposing a moratorium on the ability for investors to “quick flip.” This, however, led to companies trying to “take advantage of the [grandfather] clause,” which allowed them to continue transactions “begun before the moratorium was imposed.” The article suggests that companies were abusing the “grandfather clause” as McQuaig quotes then CR Minister, Perrin Beatty as stating, “in some cases it’s pretty tenuous how grandfathered [the transactions] are.”
McQuaig, L. (November 27, 1984.) Firms still draining revenue through R and D credit. The Globe and Mail (1936-Current). pg. B1.
Mitel issues R and D credits, 1983
December 3, 1983. Unknown Author. Globe and Mail.
In this article, the author highlights that Mitel plans to “issue […] cumulative, redeemable, convertible preferred shares carrying tax credits in accordance with research and development income tax amendments.” According to the author, the “proposed legislation permits the purchaser to claim the tax credit whether or not qualified R and D [research and development] expenditures are actually made by Mitel.”* The amendments also allowed “the purchase of shares up to 60 days after the end of the purchaser’s 1983 taxation year while still permitting the use of the related R and D tax credits against taxes otherwise payable in the 1983 taxation year.”
*This article, although it does not name it directly, could be discussing the defunct scientific research tax credit featured in articles we have summarized from 1984.
Unknown Author. (1983, Dec 03.) Mitel issues R and D credits. The Globe and Mail. pg. B6.
|2017||January 10||Kegham Redjebian||Ottawa Business Journal||The impact of mergers or acquisitions on SR&ED tax credits||Summary|
|2017||June 6||David Ross, Guest Contributor||Globe and Mail||A better way for government to help ‘pick’ tech winners||Summary|
|2017||February 6||Walter Van Lierop, Guest Contributor||Vancouver Sun||Make automation key to Canada’s economy; Embracing innovation is the best way to create new jobs, Wal van Lierop writes||Summary|
|2017||June 27||Tyler Orton||Business in Vancouver||Vancouver electric carmaker delivers first vehicle||Summary|
|2017||June 13||Brenda Bouw||Globe and Mail||Ottawa tightens screws on R&D incentive program||Summary|
|2017||July 31||Techopia Staff||Ottawa Business Journal||As Liberals tout ‘innovation agenda,’ CRA keeps scaling back SR&ED credits: CATA||Summary|
|2016||October 26||Michael Bosdet, Guest Contributor||Alberta Oil||Don’t Take Government Research Tax Credits For Granted||Summary|
|2016||November 22||Peter Kovessy||Ottawa Business Journal||Feds ‘clawed back’ $4.2B in SR&ED credits, Ottawa-based tech group says||Summary|
|2016||August 9||Jeffrey Dale, Guest Contributor||Ottawa Business Journal||Where did Innovation Nation go?||Summary|
|2016||March 16||Jeffrey Dale, Guest Contributor||Globe and Mail||No one wants to talk about it, but Canada’s R&D programs are failing||Summary|
|2016||August 9||Creso Sá||Globe and Mail||Canada’s R&D tax credit doesn’t pass the test for evidence-based policy||Summary|
|2016||May 6||Mariana Mazzucato, Guest Contributor||Toronto Star||‘Same-old’ innovation policies won’t do: Editorial||Summary|
|2016||July 27||Sean Silcoff||Globe and Mail||A federal focus on innovation||Summary|
|2015||April 12||Barrie McKenna||Globe and Mail||Generous Business Loans Come with R&D Tax Crackdown||Summary|
|2015||September 10||Daniel Muzyka and Glen Hodgson, Guest contributors||Globe and Mail||To boost productivity, Canada needs to focus on innovation||Summary|
|2015||September 13||Dan Breznitz and David Wolfe, Guest Contributors.||Globe and Mail||Canada’s R&D tax breaks can’t replace strategic innovation policy||Summary|
|2015||December 1||Peter Nowak||Canadian Business||Canada shows a “disturbing” decline in innovation and R&D||Summary|
|2015||March 12||Bob Waterworth, Guest Contributor||Financial Post||Don’t miss out on these valuable R&D tax credits, especially in the digital sector||Summary|
|2015||November 27||Ivan Semeniuk||Globe and Mail||The research challenge Canada faces||Summary|
|2014||May 30||Shane Dingman||Globe and Mail||Shredding Some Myths about Canada’s Tech Startup Subsidies||Summary|
|2014||August 23||Andrew Jackson||Broadbent Institute||Tax credits are not the way to boost innovation||Summary|
|2014||November 16||Barrie McKenna||Globe and Mail||Canada is falling behind global leaders in R&D||Summary|
|2013||May 23||Denise Deveau||Financial Post||Mission Critical; How changing government R&D incentives can impact our ability to compete||Summary|
|2013||April 9||Rona Birenbaum, Guest Contributor||Toronto Star||Change is coming- Capital assets, tax credits, and SR&ED||Summary|
|2013||January 24||Barrie McKenna||Globe and Mail||Ottawa moves to streamline R&D tax-credit program||Summary|
|2013||April 12||Howard Lerner and Shawn Rosenzweig, Guest Contributors||Financial Post||Two tax credits entrepreneurs can’t afford to ignore||Summary|
|2013||October 28||Barrie McKenna||Globe and Mail||For Canada, it’s crucial to get it right on innovation policy||Summary|
|2012||July 4||Jeffrey G. MacIntosh, Guest Contributor||Financial Post||Why cut innovation?; Flaherty wrong to slash key research tax credit||Summary|
|2012||November 19||Drew Hasselback||National Post||Document the evolution of your invention; Only unique work receives SR&ED credit||Summary|
|2012||November 27||Chris Griffiths, Guest Contributor||Globe and Mail||One Tax Credit Not to be Ignored||Summary|
|2012||December 10||Katherine Scarrow||Globe and Mail||Startup paradise is real – just don’t go searching for it in Canada: Small business owners keep eyes in the rear view mirror||Summary|
|2012||December 6||Francis Moran||Francis Moran & Associates||SR&ED and the law of unintended consequences||Summary|
|2012||March 12||Jodi Lai||Financial Post||Worry grants may stifle innovation||Summary|
|2012||March 26||Dan Ovsey||Financial Post||Fate of R&D funding a nail-biter for small business||Summary|
|2012||May 7||Denis Lajoie, Guest Contributor||Financial Post||Ernst & Young insight: Changes to SR&ED tax credit impact entrepreneurs and innovation||Summary|
|2012||November 1||Barrie McKenna||Globe and Mail||R&D tax credit changes under fire||Summary|
|2012||March 30||Dana Flavelle||Toronto Star||Sweeping changes proposed for R&D programs||Summary|
|2012||February 1||Jeffrey Simpson||Globe and Mail||Can Ottawa spark innovation? It hasn’t yet||Summary|
|2012||January 13||Susan Lunn||CBC News||Ineffective R&D Funding System Faces Overhaul||Summary|
|2012||April 4||Dan Ovsey||Financial Post||Transformative' changes to R&D funding model to be revealed over next year||Summary|
|2012||February 19||Barrie McKenna||Globe and Mail||A glaring need to determine what’s legitimate R&D||Summary|
|2012||January 29||Barrie McKenna||Globe and Mail||Stephen Harper’s innovation challenge: Canada falls behind its rivals in R&D: Biotech sector backs the idea of flow-through shares||Summary|
|2012||January 27||Barrie McKenna||Globe and Mail||Harper signals Canada’s looming R&D revamp||Summary|
|2012||December 11||University of Calgary||School of Public Policy||Billions of dollars in tax expenditures escape effective scrutiny||Summary|
|2012||March 25||Barrie McKenna||Globe and Mail||Innovation needed on a flawed R&D incentive scheme||Summary|
|2012||March 23||Barrie McKenna||Globe and Mail||Tories seek to spur corporate R&D spending with new budget||Summary|
|2012||August 7||Karen Fournier||Financial Post||What will happen to SR&ED contingency fees||Summary|
|2012||March 31||Unknown Author||Toronto Star||Harper vision ignores Ontario||Summary|
|2012||April 3||Wilfred Sorenson||Toronto Star||Putting development back into R&D||Summary|
|2011||October 14||Barrie McKenna||Globe and Mail||Study urges drastic cuts to federal R&D tax breaks||Summary|
|2011||October 16||Barrie McKenna||Globe and Mail||A Chance to Fix Our Broken R&D Model||Summary|
|2011||October 17||Jameson Berkow||Financial Post||Canada’s R&D funding system ‘unnecessarily complicated,’ panel finds||Summary|
|2011||November 21||Tom Jenkins, Guest Contributor||Globe and Mail||Setting a course for innovation success||Summary|
|2011||December 16||Barrie McKenna||Globe and Mail||Harper Hints at R&D Tax Break Overhaul||Summary|
|2011||Date Unknown||Barrie McKenna||Globe and Mail||R&D tax scheme too rich, government panel finds: Report||Summary|
|2011||July 6||Diane Peters||Globe and Mail||Wait for government grants slows hiring||Summary|
|2011||November 3||Andrew Coyne||McLeans||A Grant Dump That Smothers Innovation||Summary|
|2011||February 6||Barrie McKenna||Globe and Mail||Dubious Claims Diminish R&D Tax Credit||Summary|
|2011||February 7||Barrie McKenna||Globe and Mail||Abuse of R&D tax credit a case of the same old, same old||Summary|
|2011||March 11||Barrie McKenna||Globe and Mail||Flawed R&D Scheme Costs Taxpayers Billions||Summary|
|2011||May 2||Brian Cookson, Guest Contributor||Globe and Mail||Cash in on government help to build a better mouse trap||Summary|
|2011||October 17||Neil Seeman, Guest Contributor||Financial Post||Handbacks, not handouts||Summary|
|2010||October 8||Barrie McKenna and Jeremy Torobin||Globe and Mail||Canada’s sorry state of innovation||Summary|
|2010||November 6||Adam McDowell||National Post||A little bit of give and take; Despite large innovation subsidies, Canada’s help comes with a price in paperwork||Summary|
|2010||August 24||Bob Waterworth, Guest Contributor||National Post||A tax credit that’s often overlooked; A wide variety of activities, sectors may qualify||Summary|
|2009||May 17||David Olive||Toronto Star||Researching and developing ways to save Canada’s R&D||Summary|
|2008||January 25||Unknown, Opinion||Globe and Mail||Jim Flaherty’s R&D thoughts||Summary|
|2008||February 18||Robert Brown, Guest Contributor.||Globe and Mail||Industry's recipe for an innovative Canada||Summary|
|2007||February 6||Steven Chase||Globe and Mail||Tech Coalition Warns Takeover Spree is Nigh||Summary|
|2002||October 3||Michael Kane||Vancouver Sun||Lender reluctance said to retard innovation||Summary|
|2002||November 8||KPMG, Guest Contribution.||Globe and Mail||Tips help maximize benefit from SR&ED tax incentive programs||Summary|
|2000||April 12||Unknown Author||National Post||The boondoggle continues||Summary|
|2000||Unknown||Earl Viner, Opinion||Globe and Mail||R&D tax breaks are not wasteful – they’re essential||Summary|
|2000||October 15||Kathryn May||Ottawa Citizen||MPs question R&D tax credits: Committee bluntly asks whether government should seek other methods||Summary|
|2000||April 13||Shawn McCarthy||Globe and Mail||Tech community jumps to defend R&D tax breaks||Summary|
|2000||April 12||Alan Toulin||National Post||$5-billion in R&D tax credits bogged down in Ottawa||Summary|
|2000||April 12||Shaun McCarthy||Globe and Mail||Firms may get $2 billion tax windfall||Summary|
|1999||September 27||Wayne Stone, Guest Contributor||Vancouver Sun||Rules are complex for R&D tax incentives||Summary|
|1998||March 12||T.S. Sankar, Guest Contributor||Montréal Gazette||Use subsidies to encourage high tech||Summary|
|1997||October 30||Patrick Brethour||Globe and Mail||New rules on R&D credits seen as hard on small firms||Summary|
|1997||Unknown||Barrie McKenna||Globe and Mail||Ottawa speeds up R&D claims||Summary|
|1996||February 29||April Lindgren||Ottawa Citizen||Making exceptions to the rule; Business frowns on handouts, but not all of them||Summary|
|1996||March 7||Gillian Shaw||Vancouver Sun||Technology called key to future||Summary|
|1996||February 29||April Lindgren||Ottawa Citizen||Banks fear being left out of R&D benefits||Summary|
|1996||February 29||April Lindgren||Ottawa Citizen||Banks fear being left out of R&D benefits||Summary|
|1995||March 15||Alan Freeman||Globe and Mail||Backlog of R&D claims grows||Summary|
|1994||December 15||Alan Freeman and Barrie McKenna||Globe and Mail||Banks ask millions in R&D credits||Summary|
|1994||December 17||Alan Freeman and Barrie McKenna||Globe and Mail||Misuse threatens R&D, firms say||Summary|
|1994||Unknown||Terrence Corcoran||Globe and Mail||R&D tax credit a fiasco waiting to happen||Summary|
|1994||December 15||Alan Freeman and Barrie McKenna||Globe and Mail||You don’t need a laboratory to do R&D||Summary|
|1994||December 8||David Crane||Toronto Star||Canada’s future demands some business subsidies||Summary|
|1994||December 16||Alan Freeman and Barrie McKenna||Globe and Mail||Ottawa powerless as firms told how to reap R&D tax credits||Summary|
|1993||May 2||David Richards||Calgary Herald||Tories Tinker With Income Tax Act||Summary|
|1993||January 3||Gordon Jaremko||Calgary Herald||'Technology Doctors` Give Firms Shot Of Expertise||Summary|
|1993||November 19||Peter Hadekel||Montréal Gazette||Canadian firms are sitting on million of dollars in unclaimed R&D tax credits||Summary|
|1993||December 15||Howard Dickson||Toronto Star||Spending on research is money well spent – No other investment returns as certainly as does that in R&D||Summary|
|1992||November 21||David Smith||Vancouver Sun||Tax credit changes to plug $230 million into research||Summary|
|1991||April 29||David Crane||Toronto Star||Canada loses R&D race, study shows||Summary|
|1990||June 20||Drew Fagan||Globe and Mail||Canada’s R&D lagging despite tax credits||Summary|
|1990||March 4||David Crane||Toronto Star||Canada skimps on R&D spending||Summary|
|1988||July 8||Mike Urlocker||Ottawa Citizen||Software group urges firms to seek R & D tax credits||Summary|
|1988||February 9||John Evans||Toronto Star||Let’s set corporate tax to support research||Summary|
|1987||June 19||Andrew McIntosh||Globe and Mail||Buildings are no longer eligible for R&D tax credits||Summary|
|1987||January 21||David Crane||Toronto Star||Canada on sidelines so far in high-tech race||Summary|
|1987||August 29||George Brett||Toronto Star||Tax reform plans seen discouraging critical research||Summary|
|1987||September 5||David Crane||Toronto Star||How Wilson’s tax reform plan undercuts high-tech industries||Summary|
|1986||June 20||Unknown||Globe and Mail||R and D regulations held threat to industry||Summary|
|1984||February 14||Gordon Riehl||Globe and Mail||Tax help on the way for the R&D||Summary|
|1984||February 17||Allan Robinson||Globe and Mail||Revenue Canada takes steps to plug R and D loophole||Summary|
|1984||November 27||Linda McQuaig||Globe and Mail||Firms still draining revenue through R and D credit||Summary|
|1983||December 3||Unknown Author||Globe and Mail||Mitel issues R and D credits||Summary|
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- Creutzberg, T. (October, 2011.) Canada’s Innovation Underperformance: Whose Policy Problem Is It?. Mowat Centre. (Accessed: August 18, 2017.) Retrieved from: https://mowatcentre.ca/wp-content/uploads/publications/34_canada_innovation_underperformance.pdf. ↩
- Manley, J. and Lucas, P. (October 2010.) An Action Plan for Prosperity.
(Accessed: August 7, 2017) Retrieved from: http://www.actiononinnovation.ca/en/media/ENG_Plan.pdf. ↩
- Industry Canada. (November 1994.) Building a More Innovative Economy. (Accessed: August 18, 2017.) Retrieved from: http://publications.gc.ca/collections/collection_2016/isde-ised/C2-254-1994-eng.pdf. ↩
- Statistics Canada. (June 23, 2017.) Gross domestic expenditures on research and development (GERD) as a percentage of gross domestic product. (Accessed: September 26, 2017.) Retrieved from: http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/scte03-eng.htm. ↩
- Madore, O. (August 31, 1998.) Scientific Research And Experimental Development: Tax Policy. (Accessed: August 11, 2017.) Retrieved from: http://publications.gc.ca/Collection-R/LoPBdP/CIR/899-e.htm#1. ↩