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CAE Inc. Submission in Response to Joint Finance Canada – Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
2007 federal Pre-Budget consultationsTax Incentives for Scientific Research & Experimental Development
In response to the consultation paper dated October 2007 wherein you asked all interested stakeholders regarding ways in which the SR&ED program assisted R&D performers in Canada's business sector as well as the challenges businesses face in accessing the R&D support available with the present program, to increase the level of R&D performed in Canada by improving the program through cost effective improvement, here are our comments:
The Income Tax Act (ITA) presently governs the key elements of the current SR&ED program, including definition of SR&ED activities, types of expenditures which are eligible for R&D incentives, the calculation of the income tax deductions and the investment tax credits. Governmental assistance receivable reduces the SR&ED expenditure pool eligible for computation of federal investment tax credits.
Currently, it is Canada Revenue Agency's policy to view contribution received or receivable under the Technology Partnerships Canada program as government assistance as defined under subsection 127(9) of the Income Tax Act. We strongly recommend that a different view be taken of the Strategic Aerospace Defence Initiative program to the effect that contributions earned not reduce SR&ED expenditure pools eligible for the computation of investment tax credits.
In addition, both federal and provincial SR&ED investment tax credits are taxable in computing federal taxable income and furthermore provincial SR&ED investment tax credit reduce the SR&ED eligible expenditure pool for the computation of federal investment tax credits. To ensure that benefits conferred by one governmental body are not clawed back by another, provincial SR&ED Investment tax credits should not be considered governmental assistance and consequently, the provincial investment tax credits should not reduce the SR&ED eligible expenditure pool that is used to calculate the federal R&D investment tax credit.
Presently, many Canadian businesses are discounting the Canadian SR&ED program when deciding to invest in R&D. SR&ED tax credits decrease significantly when they are amputated by different governmental levels.
The future success of the Canadian SR&ED program resides in its true effective return to Canadian businesses. While the above proposed changes are simple and easy to administer, they would ensure sustainability of SR&ED performed in Canada by rendering the program more competitive globally. It would further ensure that the incentives are getting to those who need it as well as maximize the benefits to Canadian Businesses.
Should you require additional information, please call our Senior Tax Director Mrs. Sylvie Brossard at (514) 341-2000 extension 4421.
Alain Raquepas, LL.B, CA
Vice president, Finance
and Chief Financial Officer