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Association of Canadian Community Colleges' Submission in Response to Joint Finance Canada – Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives:
to the joint Finance Canada - Canada Revenue Agency Consultation on Improving the Scientific Research and Experimental Development Tax Incentives Program
As the national and international voice of Canada's 150 publicly-funded community colleges, institutes of technology, cégeps and university-colleges across Canada, a primary role of the Association of Canadian Community Colleges is to engage proactively in discussions and debate with respect to the role and capacity of these institutions in the nation's economic and social development. Colleges are the largest suppliers of advanced adult training and education with 1.5 million full and part-time students and 60,000 professionals in over 900 communities across the country.
Association of Canadian Community Colleges
200 - 1223 Michael Street North
Ottawa, Ontario K1J 7T2
The Association of Canadian Community Colleges welcomes the opportunity to respond to the Joint Finance Canada - Canada Revenue Agency consultation on how to make the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program more effective for Canadian business and allow it to play an even greater role in fostering a more competitive and prosperous economy.
Representing 150 community colleges, institutes of technology, cégeps and university-colleges across the country, the Association is the national and international voice of Canada's colleges and institutes. Tasked with developing and delivering programs that meet the economic needs of their regions, colleges and institutes conduct industry-led applied research and development activities that enable small-and medium- sized businesses (SMEs) to improve, develop new or improved products, processes and services.
Over the years, the Association has not only advocated to the federal government for the need to develop programs and policies that would assist SMEs in becoming more productive and competitive but also for recognition of the unique potential of both industrial expertise and physical resources resident in colleges and institutes and their ability to respond effectively to the needs of SMEs. In Budget 2007 and in the S&T Strategy, the federal government took the first step in recognizing the potential of the vast college and institute network in helping small-and medium-sized businesses become more innovative through the creation of the College and Community (CCI) Program. Unfortunately though, the funding envelope allocated for this program supports only a small number of college/institute-industry partnerships.
Current programs and opportunities to support small-and medium-sized businesses are too limited and in many cases, complex and time consuming. While the federal government is to be applauded for putting in place a tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada that will lead to new, improved, or technologically advanced products or processes, the SR&ED Program has in many ways not benefited the relatively small businesses (in many cases less than five employees) which represent over three-quarters of businesses in Canada. To substantially expand the capacity of smaller firms to move forward, SMEs will need to be supported at the organizational, technical, managerial and productivity level. SMEs will also need help not only sourcing and incorporating new knowledge and technology but will also need help through the various stages of the technological process. In addition, SMEs will need entrepreneurial skilled employees and business management structures that enable them to be innovative as well as being capable of accessing and applying to federal support programs.
Canada's colleges and institutes are the natural choice to support our SMEs. Given the unique potential of both industrial expertise and physical resources resident in colleges and institutes, and with their presence in over 900 communities across the country, these institutions can respond effectively and efficiently to the needs of SMEs.
As input to the SR&ED Tax Credit Program consultation process, the Association wishes to provide the following observations and recommendations:
- The SR&ED tax incentives must be maintained and enhanced – both in their scope and administration – in order to allow industry's productivity, efficiency and competitiveness to increase. SR&ED tax incentives are Canada's largest incentive program for industrial innovation and serve as the foundation for supporting and growing innovation and commercialization. However, the federal government must recognize that with more than 99% of Canadian business classified as SMEs, improving the ability and capacity of SMEs to grasp opportunities for innovation will be key to improved sustainability and growth in SMEs and Canada's prosperity. The SR&ED Program must target and encourage greater participation of smaller firms.
- The federal government needs to recognize that colleges and institutes are key to meeting the needs of SMEs in developing and testing new and improved products, processes and services as well as in sourcing and incorporating new knowledge and technology into businesses. Providing mechanisms for colleges and institutes to assist SMEs in more easily accessing the SR&ED Program would not only raise awareness in industry of the unique potential of both industrial expertise and physical resources resident in colleges institutes; but could serve to lessen the burden on CRA's employees who - amongst their many other responsibilities - have to respond to enquiries about how to access and use the SR&ED programs.
- Information on the SR&ED tax incentive program for SMEs should be readily accessible and ready to find. Very often, SMEs (especially the smaller ones) do not take advantage of the Program because they do not know that they exist. The sources of information need to be better coordinated and communicated to the SME sector to assist in more widespread adoption. Working with colleges and institutes is one important way to get the message out to SMEs.
- Make contributions by Canadian industry to peer-reviewed collaborative programs under the umbrella of the federal granting councils (such as the NSERC administered Community College Innovation (CCI) Program which involve Canadian post-secondary institutions i.e. colleges, institutes and universities explicitly eligible for SR&ED incentives. This would simplify administration and reduce complexities (since the peer-review process would satisfy the basic SR&ED requirements of technological advancement, uncertainty and content, while providing certainty and consistency to industry (this is already done with respect to NSERC Industrial Research Chairs).
- Make cash contributions by Canadian industry to support the development of research infrastructure for SR&ED incentives. This would simplify administration and reduce complexity (since the review process should satisfy the basic SR&ED requirements of technological advancement, uncertainty and content), while providing certainty and consistency to industry. There would be the added benefit of better research infrastructure which would be available to address industry SR&ED requirements.
- Implement a federal SR&ED specific financial incentive which serves to reward those companies that engage in research projects and programs with Canadian post-secondary institutions. This would not only increase collaboration but would also help Canada meet its goal to increase industrial expenditures on R&D. This would also encourage all provinces with SR&ED programs to do the same.
- SR&ED incentives should also be extended to firms who partner with Canadian post- secondary institutions on Canadian global collaborative research projects such as the federal government's International Science and Technology Program. Again, this would not only increase collaboration, but would also contribute to Canada's goal of increasing industrial expenditures on R&D.
- Eligible SR&ED activities should include those undertaken by Canadian firms which take place outside of Canada. In a global economy, there is a greater requirement for Canadian firms to undertake SR&ED activities (such as field or country-specific testing) outside of Canada - especially if the product is destined for export markets. This would also simplify administration since Canadian companies would no longer be required to separate their Canadian and non-Canadian SR&ED activities, and would also attract more multi-nationals to increase their presence in Canada.
The Association believes that there are opportunities for the federal government to improve the effectiveness of the current SR&ED Program through the introduction of new polices and incentives for improving the productivity climate for small and medium-sized businesses. ACCC reiterates its commitment to working with the federal government in developing these opportunities that will contribute to the economic success and prosperity of small- and medium-sized businesses.