SR&ED Critical for High-Tech Startups

Posted on April 9, 2012 by admin

High-tech companies represent the future of Canada’s economy, and the creation of well-paid high-tech jobs will be critical to ensure continuing growth of our economy.  The SR&ED program will continue to be critical for high-tech start-up companies because it offers refundable tax credits for research and development expenses that are incurred.  This means that the SR&ED program provides continuous cashflow (in the form of a cash refund) for startups companies for previous year’s expenses.

However, the downside of the SR&ED program is that it can take from 1-2 years before a startup receives the cash refund.  Being first-to-market is critical for those in the high-tech industry, and the majority of startups simply cannot afford to wait for this refund.  Thus, innovative firms such as North Innovation Fund have begun to offer SR&ED accrual debt financing.  This form of SR&ED financing frees up cashflow in a non-dilutive manner, by lending against a SR&ED claim, before it is filed.

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Changes to the SR&ED Program from the 2012 Federal Budget

Posted on March 30, 2012 by admin

The 2012 Canadian federal budget was released on March 29, 2012.  One of the issues that the budget addressed, was the SR&ED program.  The budget proposed the following changes to the SR&ED program:

  1. Removal of capital from the expenditure base (for capital expenditures incurred in 2014)
  2. Reduction of the proxy to calculate overhead costs from 65 percent to 60 percent for 2013 and to 55 percent after 2013 (to be fully phased in as of January 1, 2014)
  3. Reduction of contract payment eligibility to 80 percent of the payment (effective January 1, 2013)
  4. Reduction in the General Investment Tax Credit rate from 20 percent to 15 percent (effective January 1, 2014). This will not affect organizations that qualify for the enhanced rate of 35 percent.

We believe that the SR&ED program will continue to be one of the most critical programs to support research and development in Canada. Although the overhead proxy will be reduced, this should only have a minimal impact on SMEs, and the reduction of the general investment tax credit rate should not have any impact on the majority of small- to medium-sized businesses. This is a strong indication that the federal government will continue to support the SR&ED program.

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Recommendations Made by the Jenkins Report

Posted on January 2, 2012 by admin

A report titled “Innovation Canada: A Call to Action” was released by the Independent Panel of Federal Support to Research and Development (R&D) on October 17, 2011. This report provided a comprehensive review of the federal programs that support business innovation, and specifically made key recommendations on how the Scientific Research and Experimental Development (SR&ED) program should be revamped.

The 6 recommendations made by the Jenkins Report are as follows:

1. Create an Industrial Research and Innovation Council with a clear business innovation mandate.

2. Simplify compliance and administration of SR&ED. Redeploy funds from the SR&ED program to a more complete set of direct support initiatives.
– Limit SR&ED to labour-related costs to reduce compliance and administration overhead.
– Improve the CRA’s pre-claim service.
– Reduce SR&ED assistance by introducing incentives that encourage growth and profitability of SMEs, while decreasing the refundable portion of the SR&ED tax credit over time.
– Provide data on the performance of the SR&ED tax credit to provide more accountability.
– Adapt all changes through a phased-in approach to provide the business sector time to plan and adjust.

3. Make business innovation a core objective of procurement.

4. Transform the National Research Council (NRC) into a large-scale collaborative R&D centre involving business, the universities, and the provinces.

5. Provide risk capital to high-growth innovative firms.

6. Establish a clear federal voice for innovation, and engage in dialogue with the provinces.

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SR&ED News

Posted on December 22, 2011 by admin

In collaboration with NorthBridge Consultants, this blog will post the most up-to-date news on the SR&ED or SRED program.

The Scientific Research and Experimental Development (SR&ED) program is a $3.5 billion business incentive program whose purpose is to promote research and development in Canada. 

In 2011, Tom Jenkins (chairman and chief strategy officer at Open Text Corp) was asked to lead a committee to review the SR&ED program and to investigate how Canada can better spur innovation.  Jenkins came up with 6 key recommendations, which are as follows:

  1. Create an Industrial Research and Innovation Council (IRIC) to streamline the application process and with the purpose of providing the most impact for SMEs
  2. Simplify the SR&ED program by basing the tax credits only on labour costs.
  3. Make business innovation a core focus of government procurement.
  4. Make some changes to the National Research Council (NRC) so that it becomes a set of large-scale sectoral collaborative R&D centres that involves linking businesses and academic communities.
  5. Help innovative firms access other funding where gaps currently exist.
  6. Make the government more accountable when it comes to innovation, and improve coordination and impact when the federal and provincial provinces are working together.
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