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Ottawa Centre for Research and Innovation (OCRI) Submission in Response to Joint Finance Canada – Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
OCRI is Ottawa's leading member-based economic development corporation for fostering the advancement of the region's globally competitive knowledge-based institutions and industries. OCRI delivers its economic development services through a unique partnership with the City of Ottawa, where the City and OCRI, through its members set the strategy and manage the programs that move Ottawa's economy forward.
With a growing base of 625 member companies, OCRI brings more than 120,000 people, ideas and resources together. Our membership includes large corporations, small and medium sized technology companies, research laboratories, post-secondary academic institutions, regional government, school boards, businesses that service the technology industry, and private individuals.
Our goal as an organization is to grow Ottawa's economy with technology and innovation at the core. We drive partnerships, policies and programs that advance the business climate for Ottawa's technology, academic and government community.
The SR&ED Program
The Scientific Research and Experimental Development Program (SR&ED) is the single largest federal program supporting business R&D in Canada, providing over $3 billion in tax assistance to Canadian businesses in 2006.
Certainly the program has been important to the growth of Ottawa's technology sector. From a local perspective, SR&ED provides an economic framework for Ottawa technology companies to invest in Research and Development (R&D) and to stay competitive. The program also provides a cost advantage for public and offshore corporations to invest in R&D in Canada, creating high economic multiplier jobs. However, the basic rate and structure of the SR&ED tax program has remained largely unchanged for 20 years.
The past ten years have seen some changes to the program. Examples include the proxy method to calculate certain types of eligible costs and partial tax credits for shared use equipment.
The SR&ED program, when combined with provincial R&D incentives, competes effectively against the offerings of other countries but that competitive advantage has eroded in recent years.
OCRI's vision is to have acomprehensive review of the of the SR&ED Program and include an in-depth evaluation of its effectiveness in producing adequate levels of incremental high-quality R&D.
As part of the process we would also like to see the business community engaged during all phases of the review to ensure that any changes to the program are effective for existing and new R&D performers.
Specifically, OCRI would recommend the following changes to the SR&ED program.
To have the current refund provisions within SR&ED broadened to provide direct refunds to all qualified applicants. This will give more value to the credit in periods when corporations are not paying tax, and when they have also exhausted the possibility to carry SR&ED tax credits back to prior years.
Increase the annual R&D expenditure limit from $2M to $10M and adjust the taxable capital threshold from $10M to $50M
Include the costs to protect intellectual property IP as part of the eligible expenses. For example, the costs associated with patenting should be eligible under the program.
To have the rules around the SR&ED tax credit extended to equipment that is used primarily for R&D, so it qualifies for full credit.
OCRI is in support of the submissions by BIOTECanada, ITAC and CATA. Together, our organizations are calling on the federal government to modernize the SR&ED program to the benefit of companies performing R&D in Canada and thereby benefiting Canada.
These changes will bring the SR&ED program into the 21st century. The majority of emerging technology companies would benefit immediately or in the near term. It would be a clear indication of the Government of Canada's support for emerging technology companies, directly enabling them to be more competitive globally and encouraging jobs and investment to remain in Canada.