Tax Articles
CRA accelerates innovation
Author: Sandy Hale
Date: May 2010
Publication: Canadian PLANT
Innovation is a cornerstone of the federal government’s plans to create economic growth in Canada. In fact, the March federal budget trumpets innovation as one of the key ways the government intends to “strengthen our capacity for world-leading research, improve commercialization, accelerate private sector investment, enhance the ability of Canadian firms to participate in global markets, and create a more competitive business environment.”
A number of recent announcements have followed that promise to improve the Scientific Research and Experimental Development (SR&ED) tax incentive. Many Canadians are not aware this program distributes over $4 billion in tax credits annually to more than 18,000 Canadian businesses.
Tax credits delivered in a timely and consistent manner help make products and processes more innovative, yet the program has been criticized for inconsistent claims approvals and delays in delivering credits.
An in-depth review commissioned by the National Revenue ministry delved into these issues and the Canada Revenue Agency (CRA) has been actively working to strengthen the program’s administration. For example, to ensure policies and procedures are aligned with current business practices and consistently applied across the country, the CRA is clarifying and consolidating policies, improving claim processes and forms, enhancing communications, reviewing appeal procedures and augmenting auditor training.
This process continues, but a number of improvements are now in place that may help manufacturers wishing to take advantage of the program.
The CRA is addressing consistency concerns with a new Claim Review Manual that streamlines audit procedures. Since the claim review process is highly subjective, it’s hoped this tool will contribute to more consistent reviews and approvals. The manual sets out comprehensive procedures for the CRA to explain the program’s requirements, processes and decisions. It also describes procedures CRA auditors can use to inform claimants of other potential SR&ED claims not included in the original submission and to provide an opportunity to resubmit within the filing deadline.
The manual includes sections on planning and preparing for a review, conducting on-site meetings and communicating, reporting and finalizing results. There are also sections describing how to work with claimants and their representatives, there’s a taxpayer bill of rights and descriptions of the mutual expectations of claimants and CRA advisors who evaluate the eligibility of the work. A condensed version of this manual is available at www.cra-arc.gc.ca. To promote the timely resolution of claims, the CRA will begin in July to report the time required to review an SR&ED claim from start to finish.
These enhancements reflect the federal government’s belief that supporting business innovation will improve productivity growth, which is necessary to increase wealth and deal with such challenges as an aging population and a stronger currency.
Invest in innovation
Bank of Canada Governor Mark Carney notes Canada’s governments have put conditions for a productivity revival in place and he is encouraging Canadian businesses to invest in innovation.
The budget committed to a comprehensive review of all federal support for R&D and the government promises to reduce red tape; eliminate tariffs on machinery, equipment and goods imported for manufacturing; improve reductions business access to federal programs and information; and to continue corporate tax reductions. For manufacturers in particular, the government proposes to enhance their ability to participate in global markets by making Canada the first G20 country to become a tariff-free manufacturing zone.
For manufacturers keen to increase productivity, the SR&ED program is a wise place to start. Companies that produce qualifying new or improved products or processes may deduct 100% of all eligible current and capital expenditures. They also receive federal investment tax credits ranging from 20% to 35% based on a company’s business structure, taxable income and taxable Canadian capital. The higher level of incentives is generally reserved for Canadian-controlled private corporations.
With additional SR&ED policy initiatives under development and billions of dollars in tax credits available, manufacturers now
Sandy Hale is a tax partner with BDO Canada LLP based in Mississauga, Ont., who works with companies to secure federal and provincial tax refunds for their research and development expenditures. Phone (905) 270-7700 or e-mail shale@bdo.ca.
