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At SR&ED Education and Resources, we’re taking the time to document all the changes that have occurred to the Scientific Research & Experimental Development (SR&ED) program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986. Stay current with the program by understanding the historical context.

In 2006, the C.D. Howe Institute published a report entitled “Giving with One Hand, Taking Away with the Other: Canada’s Tax System and Research and Development”.1 The study states that, “Canada’s generous subsidies for Research & Development (R&D), combined with relatively high taxes on the fruits of innovative activity, might not be serving the country well.” The paper advocates the continued use of programs such as the Scientific Research & Experimental Development (SR&ED) program along with the implementation of a more competitive production tax regime.

R&D Investments vs. Outcomes

The author states that in spite of the fact that Canada has “one of the most generous scientific research and experimental development tax incentive regimes in the world,” Canada ranks low in “aggregate R&D intensity” (i.e., R&D as a percentage of Gross Domestic Product [GDP]).

“On this measure,” he says. “Business R&D in Canada in 2004 was 1.07 percent—below the average of 1.53 percent for member countries of the Organisation for Economic Cooperation and Development (OECD) and well below that of all other Group of Seven major industrialized economies except Italy (OECD 2006).”

SR&ED Conclusions

The author says that the SR&ED program itself acts as great R&D incentive.

“Unlike in some other countries,” he says, “the credit is non-incremental—that is, there is no minimum amount of R&D spending at which the credit kicks in—and it applies to a broad range of eligible R&D expenditures, including all current expenses.”

Instead, he suggests that the issue lies with the government’s high taxation policies that govern what is produced through R&D.

“Canada’s approach to targeting tax subsidies toward R&D on the one hand,” he says, “while imposing relatively high taxes on production inputs on the other, might not be serving the country well in terms of either its overall economic competitiveness or its innovative activity and entrepreneurship.”

This article is based on a SR&ED report at the time: Giving with One Hand, Taking Away with the Other (2006) 2

 

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Show 2 footnotes

  1. McKenzie, K. C.D. Howe Institute. (2006.) Giving with One Hand, Taking Away with the Other: Canada’s Tax System and Research and Development. Retrieved from: https://www.cdhowe.org/public-policy-research/giving-one-hand-taking-away-other-canada%E2%80%99s-tax-system-and-research-and-development.
  2. McKenzie, K. C.D. Howe Institute. (2006.) Giving with One Hand, Taking Away with the Other: Canada’s Tax System and Research and Development. Retrieved from: https://www.cdhowe.org/public-policy-research/giving-one-hand-taking-away-other-canada%E2%80%99s-tax-system-and-research-and-development.

Elizabeth Lance

Elizabeth is known as the "SR&ED Maven" in the industry. With a love of documentation and the nuances of language, she is often engaged by multi-million dollar companies to help improve documentation and workflow processes. Her favourite sentence (which she hears regularly) is "Accepted as Filed". Find out more about her on LinkedIn.

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