The Scientific Research & Experimental Development program is so complicated that more consultants than tech businesses are benefiting from it according to one economist.

Small biz seeks SRED improvements in federal budget

Streamlined research and development tax credit paperwork and centralized government IT procurement programs were at the top of the wish list of a business and technology organization yesterday as its members awaited the release of the federal budget for this year.

Finance Minister Jim Flaherty is set to unveil the Conservative government’s budget this Thursday. There is widespread speculation that huge spending cuts and a comprehensive reorganization of government programs will be announced. While an end to the government’s spending spree is expected, Flaherty’s recent speeches also indicate an overhaul of the annual $6.5 billion support programs provided to high-tech companies.

The budget will not only focus on cost cutting. The Minister has said that one of its major themes are “innovation, research and business development.” That sounds hopeful to Russ Roberts, senior vice-president for tax and finance for the Canadian Advance technology Alliance (CATA). Roberts would like to see the government cut the red tape encountered by tech businesses seeking tax credits.

Cutting through SRED red tape

“It’s hard to predict what will happen, but we would like to see some improvements in SRED (Scientific Research and Experimental Development), said Roberts, whose organization is considered to be one of Canada’s largest business technology interest groups. SRED is the government’s $3.5 billion-a-year tax credit for scientific research and development.

Roberts said SRED has been indispensible for many technology businesses but an administrative revamp to streamline the program is needed. He said many small businesses find documentation needed to access the credit very confusing and cumbersome.

For instance, Roberts said, many businesses who were previously eligible for SRED found they could not avail of the program last year. “CRA (Canada Revenue Agency) appears to have raised the bar last year without effectively communicating it to businesses,” said Roberts.

He also said that CRA documentation requirements for SRED are not constructed to deal the way many technology businesses operate. The documentation requirements are geared towards traditional scientific research and development programs that involve a “specific team targeting a specific problem,” said Roberts.

“SRED lending is focused on the micro level when in reality today, a tech venture may have integrated teams that could come from different businesses,” said Roberts.

Move towards grant system

SRED at the moment is so complicated that many businesses resort to hiring consultants to help them navigate the documentation maze, said David MacDonald, senior economist at the Canadian Centre for Policy Alternatives. The non-partisan institute for social and economic justice recently released its own alternative to the federal budget of 2012.

“Programs like SRED definitely need some changes because it appears consultants are getting a big portion of the money since a lot of the businesses are hiring them to make sense of the paperwork,” MacDonald said.

He also said the federal budget might be an opportunity to investigate a grant system for boosting business. “In a tax credit program essentially businesses need to make money in order to get back money. This leaves out a lot of startup businesses that are not yet in the profit-making stage.”

“The government can play a more active role in creating grant programs targeted at specific sectors,” MacDonald said.

This approach, he said, was effectively used by the Province of Ontario in its green power program.

 

R&D council and IT procurement

CATA also supports the recommendation by the Federal R&D Review Panel that an Industrial Research and Innovation Council (IRIC) be established to oversee the development of programs and funding.

“We definitely need an overall leadership to manage programs and funding for research and development. A council will provide the oversight and accountability needed,” said Roberts of CATA.

The tech business group also called for enhanced programs related to government procurement of IT products and services. “We would like to see policies that direct various departments of government to look at Canadian sources first when purchasing IT products and services,” Roberts said.

 

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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