Graphic Arts Magazine February 2018 | Page 26

Column

Will the research and development tax incentive be scrapped ? Elliot Schiller

The program is under review but don ’ t be surprised when changes come

Are you planning on beginning a new innovation project in order to attempt to develop a new product , enhance an existing product , or improve your production processes in a way which would make them better , faster , or cheaper ? If so , you need to know that the funding that you would normally anticipate from the Scientific Research and Experimental Development ( SR & ED ) innovation tax incentive program to help fund your project ( s ) is under review and could very likely change .

The SR & ED program is a federally sponsored program that encourages domestic manufacturing innovations with refundable tax incentives for small to medium sized companies and tax credits for larger or foreign owned companies . To learn more about the SR & ED program , see the digital version of the July 2015 issue : graphicartsmag . com / issues / july-2015 / .

Since the publication of the federally sponsored Review of Federal Support to R & D in 2011 , which had some significant criticisms of the program , we ’ ve continued to experience reductions in the monetary value of the SR & ED program . At its peak , the program was providing Canadian manufacturers with over $ 6 billion annually to support their innovation projects . Today the program has been cut to half that amount and provincially both Quebec and Ontario have reduced their SR & ED financial incentives .

Budget 2017 promised to begin comprehensive reviews of various federal departments in order to “ eliminate poorly targeted and inefficient programs , wasteful spending , and ineffective and obsolete government initiatives .” The reviews are being led by Finance Minister Bill Morneau and Treasury Board President Scott Brison .

While we haven ’ t heard the results of these reviews yet , considering the changes to the tax act that the Liberals have recently announced , it would come as no surprise if the SR & ED tax incentives which benefits upwards of 20,000 companies in Canada also experiences changes . Let ’ s look at the recent history of the program .

The background

The modern version of R & D tax credits began in 1986 . At that time , qualifying companies were able to obtain refundable tax credits for the cost of labour , including overhead ( or “ proxy ” in lieu of overhead ), materials and capital used in the innovation process . In 2012 , the base of eligible expenditures was narrowed as capital expenditures were eliminated from the program , contractor costs were reduced by 20 % and the “ proxy ” allowable was reduced by 10 % ( spread over 3 years ). Further , the general SR & ED investment tax credit was reduced by 5 %. In Ontario , effective for tax years straddling June 1 ,

2016 , the Ontario R & D tax credit rate was reduced 1 % and the Ontario Innovation tax credit rate was reduced 2 %. In Quebec , on December 2 , 2014 the government introduced a minimum eligibility threshold in order to receive any R & D tax credits . That threshold , $ 50,000 was estimated to represent eliminating almost 40 % of all claimants .

There are also the ongoing discussions about NAFTA , which currently allows U . S . and Canada SR & ED incentives , primarily because when the original agreement was negotiated , the U . S . had a similar type incentive program . But of course , this may not be the case going forward after the renegotiation of NAFTA . Based on all of the above , it would not be unreasonable to anticipate that if the trend continues , government participation in Canadian industry innovation via SR & ED is going to decrease .

When Canada was in the process of finalizing the original Canada-United States Free Trade Agreement in 1987 , Simon Reisman , Canada ’ s chief negotiator , along with various Canadian CEOs led a cross-Canada seminar series on the contents and tax benefits included within the agreement . At that time , numerous panelists repeated the well-known business maxim “ business decisions should be based on what ’ s best for the business , not necessarily what ’ s best for tax purposes .” You know what ’ s best for your business , and in order to make the most effective business decisions , it ’ s best

If you ’ re thinking of developing new products , or revamping your production processes , it might be prudent to move those plans forward , to take advantage of the existing generous tax incentives

if you know as many of the facts as possible in order to make those decisions .

Therefore , as part of your business planning strategy , if you are thinking of developing new products , improving existing products or revamping your production processes , it just might be prudent to move those plans forward , to take advantage of the existing generous tax incentives .

Elliot Schiller is a Director at Toronto ’ s Teeger Schiller Inc ., a firm specializing in government funding and systems selection / implementation . His clients receive over $ 5 million annually to support ongoing business innovation . E-mail eschiller @ teegerschiller . com , visit www . FundingHelp . ca or phone [phone] Ext . 102

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