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TesProTM Equipment 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 incentives affect the performance of R&D in Canada, and how can they contribute to increasing private sector investment in R&D?

The importance of SR & ED tax incentives for many Canadian SMEs engaged in scientific research and development cannot be overstated. Investment decisions of many SMEs, ours included, can depend significantly upon the support provided by the SR&ED Program.

Having the CRA review process determine an activity as eligible is a form of validating the research or development that can often exceed the value of any claim. If SMEs can depend upon the support and validation of a project by the SR&ED tax incentives, this validation could easily serve to increase private sector investment in R&D.

(B) Are there features of the SR&ED tax incentives that impede the growth of small and medium sized innovative Canadian companies, and how?

Barriers to growth of SMES by SR&ED rules

No specific barriers from a technical point of view.

How firms currently manage the constraints

Where a firm depends upon SR&ED tax incentives for a significant portion of research activities, a degree of uncertainty exists for the applicant between the time a claim is submitted to the time tax credits are received. The timelines and claim review process can force firms to manage their research more conservatively and with less dedication than they would prefer.

(C) How could more private sector R&D be leveraged?

Improvements to encourage more private sector R&D

Depending on the industry in question, current economic forces in Canada and increased global competition make innovation necessary for the long-term survival of many Canadian SMEs. In our opinion, the most important cost-effective improvements that could be made are in the areas of awareness and education.

Awareness

Awareness of the program could be improved:

  • Businesses could be advised of the SR&ED program and of the benefits of investing in R & D with a flyer included in the Notice of Assessment from their corporate tax returns

Education

Although the long-term need for innovation should encourage the private sector to research and develop new technologies, many industries are still fearful of the capital investment required. In TesPro's experience, the private sector needs to better understand the long-term benefits of the investment, both to their organization and to Canada's economy as a whole.

  • Flyers in the Notice of Assessment could provide statistical evidence of the need for and long-term benefits of conducting R & D in Canada
  • Testimonials from businesses that have grown, developed important technological advances and become more profitable with the aid of the SR&ED program might encourage SMEs to participate

How to support public-private R&D collaborations

Collaboration between the public and private sector could take various forms:

  • Connect SR&ED with Business Development Bank of Canada, Sustainable Development Technology Canada, Western Economic Diversification Canada, other departments, and private venture capital forums who already collaborate with the private sector, government, academic and financial institutions
  • Tax incentives which reward the sale/implementation of a new technology (encourage the SME to finish the R&D project and put it to use)
  • Higher tax-incentives for R&D done in industries that severely need to innovate in order to keep Canada competitive
  • SR&ED Awards scheme to publicly recognize innovators

(D) Given the improvements already implemented or under study, how could administration of the SR&ED tax incentives be further improved and their complexity reduced?

SR&ED program provisions

Many provisions already in place are helpful to claimants. Any changes should improve and expand the one-on-one nature of the relationship between the CRA and claimants, and streamline the process.

Strengthening consistency of the claim review process

Claims are processed more consistently when the CRA reviewers are familiar with their client's business model and R&D projects. Suggestions to strengthen consistency include:

  • Promote and expand the relationship between reviewers and clients – the importance of having a positive, educational, reliable relationship with an individual at the CRA cannot be over-emphasized
  • For repeat claimants, having the same technical and financial reviewer year to year is helpful (when it is a new reviewer, much extra time is taken familiarizing them with our business and each project)
  • Change the 6 month PCPR rule to 3 months or less

Simplifying areas of complexity

A small program of industry-specific seminars would be helpful. The information sessions already held are useful and informative, but remain general to accommodate the broad range of attendees. We have had no correspondence regarding industry-specific seminars since our first claim. Suggestions include:

  • Surveying claimants for suggestions on what industry-specific seminar would benefit them most
  • Holding seminars that examine one industry in detail, from the underlying need for innovation to how the SR&ED Program applies to that industry, perhaps even success stories from that industry

Improving publications, services and awareness

Suggestions for making the Guide to Form T661 easier to use:

  • Expand the Glossary to include terms like Knowledge Base, Arm's Length, Non-Arm's Length, PPA, ITC, etc....
  • Definitions are interspersed throughout the guide (definition of "salary or wages;" meaning of "arm's length") and not referenced on the Contents page, making them hard to find

Suggestions for improving the SR&ED website:

  • Include a FAQ (frequently asked questions) section, that is updated regularly
  • Private and secure access to an claimant's account online (to monitor the progress of a claim, contact the reviewer) would be convenient

Suggestions for improving awareness:

  • Businesses could be advised of the SR&ED Program and of the benefits of investing in R & D with a flyer included in the Notice of Assessment from their corporate tax returns
  • Flyers in the Notice of Assessment could provide statistical evidence of the need for and long-term benefits of conducting R & D in Canada
  • Testimonials from businesses that have grown and developed important technological advances and become more profitable with the aid of the SR&ED Program might encourage SMEs to participate

(E) Additional Note

The SR&ED claims process is, in general, an effective process that encourages SMEs to innovate and to maintain a detailed-oriented focus on research and development.

Time is the most important factor for many SMEs, and time-frames should be collapsed wherever possible. The time spent on preparing a claim, the time that elapses between claim submission and claim receipt, the time taken to inform a client of missing or additionally required information – these are all processes that can be streamlined.

Each claim an SME makes is educational and with good feedback from a CRA Advisor, subsequent claims can be prepared more efficiently and with only relevant information. The Account Executive Service is an example of how clear lines of communication between the SR&ED program and claimants can speed up each step of the process.

Guides and Forms are an invaluable part of the process, but no publication can replace the importance of access to a person familiar with the intricacies of and recent changes to the program. Personal access to an advisor can provide timely answers to specific questions and invaluable advice to claimants.

Researching and developing new, improved or technologically advanced products or processes is almost always related to the time an SME must wait for funding, or in the case of the SR&ED Program, an Investment Tax Credit approval.

Reducing time-frames in all processes of the program by streamlining each component will ultimately result in more innovation and technological advances by Canadian-controlled private corporations that happen sooner rather than later.