29 Mar (Business in Vancouver) SR&ED Budget Changes not as Drastic as Anticipated
By Nelson Bennett
Thursday, March 29, 2012 – B.C. technology firms involved in capital-intensive research and development will lose some critical funding under a revamped Scientific Research and Experimental Development (SR&ED) program, announced by the federal government today in its 2012 budget. However, overall, changes to SR&ED are not as drastic as the sector had feared.
Ottawa is eliminating the credit for capital expenditures under SR&ED. Starting in 2014, only overhead related to labour for R&D will qualify for SR&ED credits.
That will hurt companies that do R&D requiring a lot of expensive testing equipment. For example, Ron Klopfer, CEO of Etalim Inc., which is developing a thermo-acoustic heat engine, said a sizeable amount of his company’s overhead is related to equipment, and said losing the SR&ED credit on those expenditures will be “a huge hit” for his company.
For the most part, however, the changes to SR&ED will not be as dramatic as many had feared, said David Kaplan, who developed a web-based program called SREDable that tech companies receiving SR&ED credits use for time-keeping and making claims.
An estimated 1,500 to 2,000 B.C. companies have received SR&ED tax credits. Many consider it the most important government incentive program for companies involved in innovation and R&D.
B.C.’s technology sector has been bracing for an expected overhaul of the program, as recommended by Tom Jenkins, who was commissioned to conduct a review of Canada’s policies on innovation, research and technology.
The SR&ED overhaul did not pan out quite the way many expected it to, Kaplan said. Finance minister Jim Flaherty’s budget reduces the SR&ED credit for larger companies and increases it for smaller ones – the opposite of what Jenkins recommended.
“It’s a hell of a surprise for large companies and not much of a dent for small companies,” Kaplan said. “I think that Flaherty actually made a good call here.”
Kaplan said the SR&ED tax credit rate for labour related to R&D for large companies will go down from the current 20% to 15%.
There is no change for smaller companies, which can get back 35% of the R&D-related labour costs.
Bill Tam, CEO of the BC Technology Industry Association, said the federal budget sets a positive tone for Canada’s technology sector, thanks to its focus on innovation.
“It was encouraging to see that the government continues to find the importance of innovation overall as a major pillar for future economic growth,” Tam said.
The budget addresses concerns over a lack of access to risk capital with a $500 million venture capital fund, $100 million of which will go to the Business Development Bank of Canada to support venture capital investments.
The budget also provides funding for the following programs:
- $110 million per year to the National Research Council to double support to companies through the Industrial Research Assistance Program;
- $95 million over three years, and $40 million annually thereafter, to make the Canadian Innovation Commercialization Program permanent; and
- $105 million over two years to support forestry innovation and market development.
“The forestry innovation piece, I think, for British Columbia, is going to be very important given our base of biomass related products and clean tech industries,” Tam said.
To view this story on Business in Vancouver, click here.