Harper signals upcoming SR&ED revamp

Canada’s $3.5 billion-a-year Scientific Research and Experimental Development (SR&ED) tax credit is up for a revamp soon, according to Prime Minister Stephen Harper.

About 25,000 companies across Canada, many of them small and medium sized businesses, take advantage of the instant cash rebates the government offers for research and development expenses. Many tech startups and digital game developers rely on SR&ED to help them get their products to market and grow their companies.

 “We believe that Canada’s less than optimal results for those investments is a significant problem for our country,” Harper said to world leaders at the World Economic Forum in Davos, Switzerland.

He said he would act “soon” on a task force report that called for major changes to the tax credit program.

Last October, findings by a task force headed by Tom Jenkins, chairman of Waterloo, Ont.-based software maker Open Text Corp., indicated that Canadian companies are investing less in R&D than they did five years ago.

Other industry observers have commented that Canada has fallen behind other countries in global competitiveness rankings despite the country’s tax and funding incentives.

The Jenkins panel found that the government’s program is hampered by complexity. The panel reported there were no less than 60 programs, run by 17 different departments and agencies.

The Jenkins report called for putting innovation spending under the control of one federal ministry and one agency and the development of simpler and transparent programs. The report also recommended a shift from tax breaks to direct funding and pouring more money into late stage venture capital.

The Panel’s report contained five other recommendations:

  • The creation of an Industrial Research and Innovation Council to deliver the Federal Government’s business innovation programs (including IRAP which the panel recommends bolstering).
  • Make business innovation one of the core objectives of procurement.
  • Transform the institutes of the National Research Council into a series of large scale collaborative centres for research, innovation and commercialization.
  • Help high growth innovative firms access risk capital through BDC funds targeted at early stage investment as well as later stage ($10 million or higher) investments.
  • And establish a clear Federal voice for innovation (i.e. assign accountability for innovation to a single minister).
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