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Hydrogen & Fuel Cells Canada's Submission in Response to Joint Finance Canada – Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
H2FCC recommends the following modifications to the Federal scientific research and experimental development (SRED) tax credit program.
Thank you for the opportunity to provide input into the Government of Canada's consultations on the Scientific Research & Experimental Development (SRED) tax credit program. As the national industry association representing Canada's world-leading hydrogen and fuel cell technology sector, we are submitting the enclosed paper outlining improvements to the SRED program that will best achieve the government goal of accelerating innovation and improving productivity in Canada.
Canada has set a stretch goal of ranking 5th in the world in terms of R&D intensity by 2010. R&D tax incentives, channeled through Canada's Scientific Research and Experimental Development (SR&ED) Program can help to realize this goal. While the program is still an effective tax policy tool, it does not reflect today's economic conditions and realities and therefore cannot achieve its maximum impact.
Refund of SRED tax credits to entities beyond Canadian Controlled Private Corporations (CCPCs) – e.g. non Canadian controlled private companies; public companies
Extension of the refund of the SRED tax credit to allow non CCPCs access to refundable SRED credits where R&D is carried out in Canada. To facilitate the effectiveness of refundable SRED we would also suggest three additional specific modifications:
- The amount of R&D spending that is eligible for refunds should increase to make the program relevant to medium sized organizations. The present maximum federal refund of 35% on $2M in R&D spending is $700K.Hydrogen & Fuel Cells Canada (H2FCC) believes that increasing the expenditure limit up to $10M will ensure that the SRED program is relevant and significant and will maximize the amount of R&D done in Canada.
- Keep the "size test" in place but raise the level to $50M from the current $10M. Setting the taxable capital threshold at $50m would allow for all small and medium sized companies to benefit. The $50m threshold is also consistent with the increased threshold for Large Corporations tax purposes, prior to the elimination of the tax.
- Leave the profitability test in place but increase the taxable income threshold to $2M. Presently as soon as a company hits taxable income of $400K the refund begins to be ground down and at $600K it becomes $0. Leaving the profitability test in place but increasing the taxable income threshold to $2M will exclude the large and mature businesses that can take advantage of the application of SRED tax credits against income taxes payable.
Application of non-refundable SRED tax credits to other Federal tax liabilities
Expand the application of non-refundable SR&ED credits (in excess of income taxes) to allow for their application against other federal tax liabilities such as CPP and EI (with a refund limit of $4M per R&D performer).
The private sector is currently responsible for more than 85% of R&D investment in hydrogen and fuel cell technologies in Canada. As capital has no citizenship, and the rest of the world has much more of it than Canada, we strongly recommend expanding eligibility criteria, raising credit limits, improving refundability in order to attract global capital to Canada.
We wish to participate in your upcoming SRED consultations and look forward to hearing from you on this matter. Please contact me in English and by e-mail. With this letter we also authorize the placement of the enclosed H2FCC's SRED position paper on the Finance Canada website.