Small biz hope federal budget doesn’t harm R&D funding, hiring credits

In a few hours the Conservative government is set to release its federal budget for this year. Massive cuts are already expected but technology startups and small businesses are hoping that programs they rely on will not get axed.

For instance, the SRED (Scientific Research and Experimental Development) tax credit and IRAP (Industrial Research Assistance Program) are two programs that are near and dear to startups, according to Victoria Lennox, founder and executive director of StartUp Canada, a newly formed entrepreneur-focused organization.

In recent months there have been calls for the revamp of SRED, the $3.5 billion-a-year tax credit that some 25,000 small and medium sized businesses rely on.

Although many complain of red tape associated with the program, Lennox said “Many startups love SRED.”

“Yes, there is a lot of red tape. But SRED is well-received by the community,” she said. “When things are not broken, we shouldn’t get rid of it.”

Lennox also hopes that the IRAP doesn’t get scrapped. Last year the Conservatives pledged to release $80 million over a period of three years to the program. IRAP provides financial assistance to SMBs to help them develop competitive technologies.

“I hope the IRAP continues to be funded,” Lennox said. “IRAP works and needs to stay.”

The federal government is planning to divert SRED’s focus, according to Jeffrey MacIntosh, a professor of capital markets at the Faculty of Law at the University of Toronto.

A SRED review panel headed by Robert Jenkins, chairman and chief strategy office of Open Text Corp., has proposed that SRED funding be refocused to help more productive and more mature companies, he said.

But MacIntosh said more than 20,000 of the nearly 25,000 businesses that use SRED are startups and small businesses that are in very early stages of development and need the assistance badly to survive. ”I disagree with the Jenkins report findings that the program should be revamped because only two per cent of SRED-using companies bring about desired results.”

The U of T professor said he had studied Silicon Valley tech firms and found that their rate of survival is actually very close to those of SRED recipients.

He said there has been a lot of talk that Canadian companies are good in research but not in commercializing their ideas. “But these small Canadian companies are in very early stages of funding and it’s a very precarious position.”

“They need to be helped rather than have SRED assistance they rely on taken away,” he said.

Meanwhile the Canadian Federation of Independent Business (CFIB) is hoping that Employment Insurance credits for small businesses are increased. This is on the top of their 12-point recommendations for the federal budget.

If a small business paid out $10,000 or less in EI premiums in 2010 but saw an increase in premiums in 2011, that business would be eligible to receive a tax credit of up to $1,000. The measure is meant as an incentive for hiring new staff. It means that a firm could take on two or three new employees without incurring additional EI cost.

The CFIB wants the government to extend the program beyond 2012 and allow it to cover businesses that pay up to $15,000 in EI premiums as well.

Entrepreneurs are also closely watching the federal government’s plan to replace the immigration entrepreneur program. The government wants to focus the program on what it calls “high-value innovators” from abroad who can open up businesses that will hire more workers.

Workers though might deem some items in the CFIB wish list not beneficial to employees:

  • A fix to the EI rate to ensure it does not rise during economic downturns
  • No new stimulus spending and a balanced budget by 2015
  • Bring federal public sector wages and benefits in line with private sector counterparts
  • No increase to the mandatory Canada Pension Plan premium. Instead support the implementation of the Pooled Registered Plan ensuring employer participation is entirely voluntary.
Nestor ArellanoNestor Arellano is a Senior Writer at ITBusiness.ca. Follow him on Twitter, read his blog, and join the IT Business Facebook Page.
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