When Finance Minister Bill Morneau delivers the Liberal government’s long-awaited federal budget for 2016, there will be more than a few high-profile industries, including tech, anxiously watching to see how it might affect the way they conduct business for at least another year.
Fortunately, Information Technology Association of Canada (ITAC) president and CEO Karna Gupta believes the federal government is committed to supporting the technology sector.
“If you look at the mandate letters to each of the ministers, there’s a willingness and understanding that if you’re going to build a knowledge economy, the technology sector is a critical piece of the puzzle,” he says.
In fact, ITAC has approached several ministers, Gupta says, including minister of innovation, science and economic development Navdeep Singh Bains, employment, workforce, and labour minister MaryAnn Mihychuk, minister of public services and procurement Judy Foote, and finance minister Morneau himself, with documents outlining some of the technology sector’s goals and how they could align with each minister’s mandate.
Among ITAC’s suggestions: updating the Scientific Research and Experimental Development (SRED) tax incentive program, which provides more than $4 billion in investment tax credits to over 18,000 claimants and was last reviewed in 2011; encouraging the commercialization of intellectual property through tax incentives; and increasing stock option-related tax breaks.
“If you don’t have those three things, you cannot attract, you cannot retain, and you cannot reward skilled employees – and there is no reason for them to hang around your office,” Gupta says.
“For example, if you’re in a business and you generate $2 of revenue, one from selling a pencil, the other from selling your idea, the dollar you received from selling your idea should be taxed at a lower rate,” he says. “It’s an incentive to commercialize intellectual property.”
ITAC isn’t the only organization to propose updating the federal SRED incentive program, with both Albert De Luca, a partner and national leader with international consultation firm Deloitte’s global government incentives, R&D, and tax departments, and Russ Roberts, senior vice-president of advocacy for CATA (the Canadian Advanced Technology Alliance) Alliance, echoing the suggestion.
“There’s a revolution that’s occurring – we may not see it, but we will certainly live it – and this revolution relates to new enabled technologies that will have an impact right across our economy,” De Luca says.
That revolution will require a greater focus on how the technology sector can have a greater impact on society in general, he says – and how the federal government can help spur it.
“We are demonstrating that we have the skill set – a lot of the skill set – to create the small firms and larger firms, and can do so relatively well,” CATA’s Roberts says. “But there’s more that needs to be done, and we need a government to take advantage and help the sector grow.”
Neither Roberts nor De Luca anticipate the federal government committing to an update of the SRED program when the budget is released, though De Luca expects to hear an announcement regarding the policy, which would reflect the government’s renewed commitment to Canada’s tech sector.
“It needs to be looked at very carefully by experts who understand tax, understand the implications of the way the legislation works – and understands, quite frankly, that the frustrating aspect of working on this writ file is that nobody really knows which support is going to what,” Roberts says.
De Luca would also like to see the government making what he calls “centres of excellence” a greater priority – that is, increasing investment in large global projects which could help move the tech industry forward in general, similar to the federal biotechnology investments which have led to such high-profile Canadian breakthroughs as the discovery of transplantable stem cells.
“Canada invested 1.6 per cent of its GDP in R&D in 2014,” he says. “That is awful. Awful. It’s behind all of our partners.”
On the other side of the coin, Ian Heine, a Vancouver-based partner with the Canadian arm of international consultation firm PricewaterhouseCoopers (PwC) LLP’s Tax Services practice who advises clients in the technology, information, and communication industries, fears that many upcoming policies already announced by the federal government could have a negative impact on Canada’s tech industry: for example, its intent to raise federal income tax rates for salaries over $200,000.
“I think it’s important to recognize that for technology companies in Canada, our base of talent is just not as large as some other jurisdictions,” Heine says. “While we do a good job of organically growing some of those entrepreneurs and visionaries into leaders of the industry, the ability to find all of the facets you need for a robust executive team is quite difficult for technology companies, and so that requires the higher end of the salary scale.”
Moreover, Heine says, the types of executives who receive the industry’s highest salaries tend to draw other jobs and benefits to their local economies with them, creating a much larger potential loss.
As for how the Liberals could address the problem, Heine says there has been talk of researching the feasibility of a “patent box” regime, which would provide companies with a lower corporate tax rate for certain profits earned by commercializing their patents – the same intellectual property tax incentives mentioned by ITAC’s Gupta. Certain provinces have a limited patent box regime in place, Heine says, but there is no federal equivalent.
Meanwhile, Ministry of Finance spokesperson Jack Aubry told ITBusiness.ca that until the budget is delivered, it is the ministry’s policy not to comment, adding that the budget is not yet written and that the department is currently in the process of meeting with representatives from multiple industries, including tech.
Tomorrow we’ll share four other ways our experts suggest the government could help Canada’s tech industry.