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Rye Management Consultants Inc. Submission in Response to Joint Finance Canada – Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
(A) How do the SR&ED tax incentive affect the performance of R&D in Canada.
1. The SR&ED tax incentive is a major contributor for small to medium companies when deciding R&D investments. In some cases the decision is not how much companies should invest but whether to invest at all.
(B) Are there features of the SR&ED tax incentives that impede the growth of small and............
1) The impact of non-refundable credits for small and medium companies is tremendous. Small companies make R&D investments when credits are refunded and conversely stop doing R&D when non-refundable.
2) For small growing companies the impact is even greater as the company needs the cash to fund its R&D activities.
3) In some cases the benefits of the program defeats its intended purpose. For example a company earning a sizable refundable ITC in one year along with a slight increase in earnings in the same year may end up with a taxable income greater than the limit for refundablity. Thus a company receiving refundable assistance for a number of years but now ready to begin taking the benefits from its past R&D successes is penalized. The end result being a reduction or no R&D in the current year. This is very disruptive for businesses.
4) Propose a substantial increase in the taxable income limit from $400,000 to 800,000.
5) Propose to reduce the impact of the previous year's ITC on taxable income from 100% to 25%.
6) Eliminate taxing of credits.
7) Propose to eliminate associated company taxable income and capital employed. Especially for associated companies with unrelated business activities.
8) Irregular receipt of ITC and OITC refunds is an impediment. Especially on the OITC side, where it is not uncommon to receive refunds 6 months after receipt of ITC and 11 months after submission of claims. Propose to harmonize the processing of claims but more importantly receipt of refunds should be made either same time or within predictable time frame.
(C) How could more private sector R&D...
See recommendations above.
(D) Given the improvements already implemented......
1) I have no issues accessing the provisions of the program.
2) I have no issues with the review process.
3) Propose to harmonization with provincial (OITC) claims.
4) I believe the Government is doing an excellent job in promoting the program.