SR&ED Changes Will Hurt Canadian Manufacturing

June 1, 2012

Forty-seven national industry groups representing more than 100,000 companies from across the country are calling on the federal government to step back on its proposed changes to the Scientific Research and Experimental Development (SR&ED) tax credit, citing damaging effects on the manufacturing sector and its overall innovation performance.

In a letter to Finance Minister Jim Flaherty, the Canadian Manufacturing Coalition (CMC) said the outlined changes fail to welcome large R&D mandates and inhibit the ability of manufacturers to successfully commercialize new products and technologies. The March budget highlighted a 5 percent cut to the popular tax credit, removing $770 million from the program starting in 2014.

“While the coalition applauds the government’s commitment to boost research collaboration between private, public, and academic sectors, these initiatives will not offset the negative impact of proposed changes to SR&ED,” said Jayson Myers, CMC chairperson and president and CEO of Canadian Manufacturers & Exporters (CME). “Manufacturing is much more capital-intensive than other areas of the economy, comprising close to 60 percent of all private sector R&D. The 1.8 million Canadians employed by CMC member companies rely on these investments and manufacturing as a whole for good jobs and a high standard of living.”

The elimination of capital expenditures from eligible SR&ED expenses will remove $95 million from the program alone through 2017, deterring the largest users of the tax credit.

The coalition is asking policymakers to work with industry to help shape the budget proposals into a more comprehensive innovation strategy for Canada.

“Business needs to remain a top priority for the government,” said Myers. “In our letter to Minister Flaherty, the coalition outlined a number of recommendations to promote and nurture innovation in Canada. We look forward to working alongside all stakeholders to ensure Canadian manufacturing remains globally competitive and a core driver of economic growth.”

The coalition recommended that the government:

• Reward innovation through a smart tax system for products that are a result of a patent developed in Canada.
• Make the accelerated write-off of capital equipment a permanent feature of the tax system.
• Ensure technical assessments and audits of SR&ED claims be conducted by subject area experts to provide more clarity and certainty.
• Complete, with sufficient industry input, the proposed study of contingency fees currently charged by tax advisers to prepare SR&ED claims.
• Review the potential impact of the two key proposed changes (tax credit reduction and elimination of capital expenditure eligibility).

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