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Brian Hartman, R&D Funding Management Inc. Submission in Response to Joint Finance Canada - Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
There is no doubt the SR&ED program is a fundamental component in assisting Canadian companies to compete in a global marketplace. However, there are several areas of improvement possible as follows:
1) Remove the CCPC restriction for refundable credits – The majority of new companies, with new technologies, seek capital to evolve their technology, and attempt to commercialize it. One significant area they seek capital is through public markets; however, in so doing they eliminate the possibility of needed SR&ED refunds. This seems counter productive to the overarching aim of the SR&ED program. At a recent biotech forum (Research to Revenue), Dr. Brad Thompson CEO of Oncolytics Biotech stated in his opening address that while Canada was good at assisting startup companies, it was poor at helping them commercialize, and he went on to explain that his company, as most, seek capital and support in other countries, which ultimately leads to Canada losing its innovation base.
2) Allow non-refundable credits to be utilized against any other governmental tax outstanding, such as payroll source deductions, EHT, GST – There are several studies indicating Canadian business is overtaxed and therefore overburdened with bureaucracy, which significantly reduces their ability to concentrate on their core competence and therefore compete effectively. If SR&ED non-refundable credits were transferable and could be utilized to reduce or eliminate other governmental tax burdens, this would provide a substantial positive influence on a company's ability to continue and be successful.
3) Provide consistent direction on applying SR&ED criteria and policies – Unfortunately a significant number of SR&ED claims seem to be subjectively administered, to the detriment of deserving companies, and typically SMEs, which are the engine of our economy. The current review/audit process requires an overhaul and better use of technology. For example: a) a self-assessment process could be introduced to repeat clients that have passed through a CRA review and that have demonstrated documentation tracking procedures in place, b) construct a publicly available portal for CRA, SR&ED consultants and clients to interact, and where a specific aspect of a SR&ED claim has been accepted, this now stands as CRA practice and all other claimants should obviously be eligible to take advantage of this, c) etc. I am aware of at least 10 foreign companies who intended to invest millions in Canada until they encountered subjective bureaucracy on SR&ED and related programs – the point is we have to compete globally and several other countries are providing streamlined access to incentives.
4) Increase the taxable capital threshold to $50 million dollars – This will better reflect inflation of capital, and the reality of the amount of capital necessary to bring a new technology to a point of commercialization. A quick review of biotech and its capital requirements should be sufficient to justify this increase.
5) SR&ED Contracts – Since the supposed point of policy surrounding SR&ED contracts is to avoid claim duplication, update the policy on SR&ED contracts to allow claimants to claim whose contract is with a governmental agency, or any other circumstance where the payer waives their intention or cannot make a SR&ED claim. There are several significant companies caught in this dilemma.
6) Establish a review board – It is counter intuitive to assume CRA can objectively review a claimant's appeal. An independent review board should be established of SR&ED consultants, industry sector representation, and Ministerial oversight to ensure a claimant's appeal is dealt with in an objective manner, which should also avoid most appeals ending up in tax court.