[author: Marc McLaren-Caux]
Does your business make use of Scientific Research and Experimental Development (“SR&ED”) tax deductions and credits? If so, take note – major changes to the program will likely be announced in the upcoming federal budget, which is expected March 29, 2012.
We have written extensively in the past
about the SR&ED program. As an overview, the current SR&ED program seeks to stimulate R&D in Canada through the use of both tax deductions on allowable SR&ED expenditures, as well as tax credits, earned on a percentage of qualified SR&ED expenditures, that are in some cases fully refundable. The incentives are available to corporations, proprietorships, partnerships, and trusts, though the greatest benefits accrue to CCPC’s. In 2007, the average credit for small businesses was roughly $65,000; for larger corporations, $700,000.
Why are changes to the program expected? There have long been mixed views about the effectiveness and efficiency of this tax incentive program; most recently (October 2011), the Jenkins Report
suggested a reduction in overall subsidies provided under the SR&ED program and a rechanneling of the savings into targeted grants. Generally, the report took the view that too much of the program mix for the stimulation and support of R&D in Canada is weighted toward the indirect tax incentives provided under the SR&ED program.
‘Within’ the incentive program, the Jenkins Report also recommended simplifying the structure and administration of the incentives to target only firms’ labour-related costs, which should be welcome news from a cost-of-compliance perspective (that is, if the report’s 14% compliance cost estimate for SME’s is accurate).
So, how might this affect your firm? Although the Jenkins Report does not suggest reducing overall subsidies to firms conducting R&D, if the federal government adopts the report’s recommendations, to follow the subsidies firms may have to some extent retool to meet the requirements of any new direct grant program.
However, until the budget is announced, we will have to wait to see what changes will come to the SR&ED program and if and how any new direct funding program will be administered.
For now, the report also suggested that changes to SR&ED be implemented through a phased-in approach, over several years, “to give the business sector time to plan and adjust smoothly”.
is an articling student with FMC's Ottawa office