Panel Urges Canada To Simplify Research Tax Credit

by Mike Godfrey, Tax-News.com, Washington

20 October 2011

With CAD5bn (USD4.95bn) offered at a federal level in research and development (R&D) funding each year, Canada's government must implement a simplified and more focused approach to the aid, according to a new report that also argues changes to the tax credit system are needed.

The final report of the Expert Panel on Federal Support to Research and Development was published on October 17. The independent panel was appointed in October last year to conduct a review of all federal support for business R&D. Consultations were held with the private sector, academic leaders, the provinces and territories, and experts in the fields of science and technology.

The report offers recommendations on how the government's contributions to innovation and its efforts to help create economic opportunities for businesses can be improved.

Summarizing the findings, panel chair Tom Jenkins said: "What we found was a funding system that is unnecessarily complicated and confusing to navigate. There are also significant gaps that hinder the ability of our businesses to grow and that keep Canada from taking full advantage of this country's innovations."

One of the six key recommendations provided is the suggestion that the government simplify the tax credit system used to support small and medium-sized businesses. According to the panel, the current Scientific Research and Experimental Development (SR&ED) programme is unnecessarily complicated. The report notes that many small businesses hire consultants just to submit an application.

As a result, the complex nature of the system discourages eligible businesses from applying for the available benefits. This may therefore cost successful small SR&ED recipients a good portion of the credit received. The panel notes that the system could be made more effective by basing the SR&ED credit solely on labour costs.

Jenkins added: "Government needs to do a better job helping our innovative SMEs grow into larger, world-competitive companies in Canada. Relative to the size of the Canadian economy, government support for business R&D in Canada is among the most generous in the world, yet we're near the bottom of the pack when it comes to seeing business R&D investment. Our report took a hard look at this problem and with valuable input from businesses, scientists, and the academic community we've come up with some practical solutions."

Gary Goodyear, Minister of State (Science and Technology), commented: "Canadian businesses need to invest in more research and development to make sure that, in the future, they can compete, grow and create new jobs. Our government will examine this report closely with the goal of encouraging more business investment in R&D so that Canadian families can continue to enjoy a high standard of living."

The government has said it will review the recommendations over the coming months.

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