Businesses hope clarified tax credits spur growth of R&D

The federal government has clarified the rules for a $3.5-billion program that helps businesses pay for research and development.
A panel headed by Tom Jenkins reviewed federal support for research and development. The panel's 2011 report, among other things, called for a simplification of the tax credit system to spur innovation. (Adrian Wyld/Canadian Press)

The federal government has clarified the rules for a $3.5-billion program that helps businesses pay for research and development.

The Scientific Research and Experimental Development program has been around for years, but one complaint has always been that it's too complicated for businesses.

In a letter to the federal finance minister, the Canadian Manufacturing Coalition argues its analysis shows there were $4 billion of unused tax credits available between 2000 and 2004.

Elizabeth Lance, an Ottawa-based consultant who helps businesses apply for tax credits, says recent clarification of the federal SR&ED tax credits will help businesses take advantage of federal assistance. (Lizlance.ca)

"Before the clarification it was very difficult to find any information on the website," said Elizabeth Lance, a consultant with The Ingenuity Group in Ottawa. Lance helps companies decipher the rules.

"The documents you were looking for, the definitions you were looking for would be in a document that was archived in a back corner."

Now, Lance says, the rules and the definitions of who can quality for the tax credit program are clear.

And that will help businesses such as Ottawa's Opin, a new company that offers technology that runs websites for governments and the public sector.

Chief Executive Officer Chris Smith started the company a year ago, with two employees. Even though the firm was small, he felt it was necessary to include an engineer to do research into a better, faster search engine.

With Lance's help, Smith discovered he qualified for a tax credit under the SR&ED program amounting to $50,000.

"For us, it was an unexpected return or an unexpected benefit for the first year, but I can tell you the impact its having. With [the engineer] Jon, we put him on a project that had a set duration. Now that we have this [tax credit] coming back, we can keep Jon on, we can extend his stay, and his R & D project can get to the next phase," Smith said.

Some concerns remain

According to Industry Canada's website, small businesses such as Opin account for 25 per cent of research and development activity in Canada.

It also means jobs. Smith says beyond paying for an engineer for 2013, his company has now expanded to eight staff, and he's looking for new office space, in part because of the government help.

But Lance still has some concerns going forward, namely that government staff who process these tax credits will understand the newly clarified rules as well.

"How does that trickle down to the next level of actual administration of the program? One of the main concerns that people have about the SR&ED program is that it's applied inconsistently across Canada. This comes up quite regularly.

"And the hope is that with the clarified policy documents it will be more consistently administered," she said.

And there are other concerns too.

Because it is a tax credit, companies like Opin must pay for the research up front and then get some of it back the following year.

The manufacturers' coalition argues that many companies are struggling during the recession to set money aside for R & D.