On October 17, 2011, this group of experts released its report to the public entitled: Innovation Canada: A Call to Action. The objective of the Jenkins panel is to promote the innovation of local businesses, without generally impacting the government of Canada’s research and development (R&D) funding. The group of experts, therefore, made recommendations on the effectiveness of Federal R&D funding programs.
Among the six recommendations to promote business innovation, only one would have specific impacts on scientific research and experimental development (SR&ED) tax credits being claimed by SMEs: Simplify the tax credit incentive used to support small- and medium-sized enterprises.
Three of the suggested measures to achieve this recommendation would have a direct impact on the administration of the SR&ED program:
|Measures||Current Situation||Impacts of Proposed Recommendations|
|1. Improve the Preclaim Project Review Service (PCPR)||A preliminary review does not guarantee that a project will be eligible for the SR&ED credit once completed.||Results in entities receiving prior approval as to their eligibility for the tax credit.|
|2. Simplify the base on which the credits are calculated||Credits are calculated on the costs of internal and external labour, the material consumed and on equipment used 50% and more on SR&ED.Complex calculations and eligibility that is difficult to estimate and predict Calculate the credits only on the costs related to internal and external labour and gross-up the rate.||Simplified calculations and savings for the government. These savings will be redeployed to finance direct support measures for SMEs.|
|3. Introduce incentives that encourage SME growth||The refundable portion of the credit is paid out, even if the enterprise does not generate taxable income.||The refundable portion should be decreased so that a portion of the savings is redeployed to increase the enterprise’s profitability.For those entities in the pre-start-up phase, the refundable tax credit on labour-related costs would be guaranteed for a specific number of years.|
In conclusion, if the government accepts the key conclusions of the Jenkins report, the program will maintain its status as a cornerstone of R&D financing in Canada and be available to enterprises of all sizes and in every sector. In this case, the program’s eligibility and spirit will remain intact.
To consult the Expert Panel Review report on R&D, go to: