Canadian Firms Want Better Research And Development Incentives

by Mike Godfrey, Tax-News.com, Washington

30 November 2007

Almost nine out of ten of respondents to a survey by KPMG LLP have said that increased Scientific Research and Experimental Development tax incentives would influence their company's decisions regarding supporting further Research & Development investments in Canada.

The survey, published as a Canadian government consultation on proposed R&D tax incentives comes to an end, found that 86% of businesses would respond in some way to increased SR&ED incentives. However, KPMG also found that 36% of respondents do not consider the availability of R&D tax incentives as a factor in the decision-making process when selecting a geographic location for their R&D activity.

KPMG is submitting its survey findings in advance of the November 30th, 2007, deadline for organizations to submit comments to the Department of Finance and the Canada Revenue Agency on how to make Canada's R&D tax incentive program more effective.

KPMG suggests that a lack of certainty with regard to the likely outcome and a lack of knowledge, experience and understanding are key factors explaining why the SR&ED tax incentive is not more often considered by some Canadian businesses. The firms also noted that some have tried to use the program before, have become frustrated with the process, and therefore have decided not to factor it into their decision making process in the future.

"Canadian companies are telling us they think the R&D tax incentive program is a positive one for R&D in Canada," commented Alan Katiya, FCA, National Leader and Partner, KPMG's SR&ED Tax Services Group. "However, there is room for improvement in the process; the program needs to be administered in a more effective way to ensure that companies are able to access the benefits available to them."

KPMG believes that improving the R&D program is not just about providing more money to organizations, but also about making the process more relevant to more organizations. When making their investment decisions, organizations are putting more emphasis on the availability of qualified labour (84%), corporate tax rates (69%), and labour rates (66%), the survey found.

"Relative to any other country in the world, this program is generous and already very lucrative for Canadian businesses," observed David Regan, CA, Partner-in-Charge of KPMG's SR&ED Tax Services Group in Toronto. "But a greater focus needs to be put on making the program more accessible to companies so they are more likely to use the incentives."

KPMG commissioned the survey between November 5th and 26th, 2007, and received 345 respondents, with 67% having spent more than 100 hours involved in the R&D tax incentive program. Members of more than 20 trade organizations participated in the survey.

The SR&ED tax incentive program is the single largest federal program supporting business R&D in Canada, and provided over C$3 billion in tax assistance to Canadian businesses in 2006. The government has said that the SR&ED program plays, and will continue to play, a leading role in fostering a competitive and dynamic business environment in Canada.

When it launched the consultation in October, the government announced that its overriding objective was to increase the level of private sector R&D by implementing cost-effective improvements to the tax incentives, and further streamlining the program’s administration.

“Our government continues to look for new and innovative ways to improve the administration of the tax system and to reduce the burden on businesses,” Gordon O’Connor, Minister of National Revenue stated at the time. He concluded: “Private sector R&D is crucial to the long-term growth and prosperity of our economy, and this broad-base consultation process will help us improve our existing programs.”

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