July 19, 2022
Ottawa’s Review of the SR&ED Credit Needs Bolder Thinking
- Ottawa’s review of the Scientific Research and Experimental Development (SR&ED) program is welcome news, but bolder thinking is needed to substantially improve the effectiveness of the tax credit, according to a new report from the C.D. Howe Institute. In “Tax Support for R&D and Intellectual Property: Time for Some Bold Moves,” author John Lester says the review, announced in federal budget 2022, risks being focussed on issues that will have, at best, a minor impact on the net social benefit of the program.
- The SR&ED investment tax credit is a large program, costing approximately $3.5 billion in 2022. In contrast to government spending programs, which must be evaluated every five years with the results made public, there is no requirement to assess tax-based spending programs. Formal periodic reviews are needed to ensure that taxpayers are getting value for money.
- The announced review has two general objectives: to assess whether the SR&ED program is effective in encouraging R&D that benefits Canada, and to explore opportunities to modernize and simplify the SR&ED program. The budget announcement included a commitment to assess the merits of implementing a special low rate of taxation on profits from intellectual property (IP), also known as a Patent or IP Box.
