October 17, 2011
Expert Panel Recommends Changes to Federal R&D Funding Programs
Savings from changes to R&D tax credit program to be invested in direct subsidies for small and medium-sized businesses
Today an expert panel established to review the federal government’s support of research and development (R&D) in Canada released its report. The 148-page report recommends changing the balance of R&D spending to provide more direct funding through targeted grants and incentives and less in the form of indirect spending through tax incentives.
Specifically, the panel recommends simplifying the Scientific Research and Experimental Development (SR&ED) tax credit program by restricting the base for the tax credit for small and medium sized businesses to labour-related costs and raising the tax credit rate.
· Create an Industrial Research and Innovation Council (IRIC), with a clear business innovation mandate and enhance the impact of programs through consolidation and improved whole-of-government evaluation.
· Simplify the Scientific Research and Experimental Development (SR&ED) program by basing the tax credit for small and medium-sized enterprises (SMEs) on labour-related costs. Redeploy funds from the tax credit to a more complete set of direct support initiatives to help SMEs grow into larger, competitive firms.
· Make business innovation one of the core objectives of procurement, with the supporting initiatives to achieve this objective.
· Transform the institutes of the National Research Council (NRC) into a constellation of large-scale, sectoral collaborative R&D centres involving business, the university sector and the provinces, while transferring NRC public policy related research activity to the appropriate federal agencies.
· Help high-growth innovative firms access the risk capital they need through the establishment of new funds where gaps exist.
· Establish a clear federal voice for innovation, and engage in a dialogue with the provinces to improve coordination and impact.
The panel recommends reducing compliance and administration costs by basing the tax credit benefiting small and medium-sized Canadian controlled private corporations on labour-related costs, including the labour component of contracts and payments to third parties such as universities.
As a result of this recommendation, SMEs’ costs such as capital expenditures, materials and overhead would no longer be eligible for SR&ED tax credits.
Because the credit would be based on a smaller cost base, its rate would be increased. The report says the government should consider eventually extending this new labour-based approach to all firms.
The report also includes the following recommendations for the SR&ED program:
More cost effective
implementation and consultation
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