Second phase of consultations on the Scientific Research and Experimental Development Tax Incentive Program
Current status: Closed
Budget 2024 announced an additional $600 million over four years starting in 2025-26, with $150 million per year ongoing, for future enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive program. To inform the delivery of this additional funding, the government launched a second phase of consultations on April 25, 2024, as part of its work to enhance the SR&ED program and target this additional funding to boost research and innovation.
The Department of Finance concluded the second phase of consultations, which gave all interested members of the public the opportunity to provide input on this topic, on May 27, 2024. Thank you to everyone who participated.
Key questions for consideration
This consultation sought feedback on potential improvements to the SR&ED program.
The discussion questions that served as the basis for this consultation were the following:
- What are some of the challenges faced by research-and-development-performing small- and medium-sized Canadian public corporations when it comes to financing?
- To avoid any potential disincentives to growth, would entrepreneurs favour a program with one single rate accessible to all, even if it means somewhat lower support for small Canadian-controlled private corporations?
- How should the concept of “Canadian” public corporations be defined, should the government proceed with measures to improve access to the SR&ED program’s enhanced credit for Canadian public corporations?
- The SR&ED program currently has rules to prevent the multiplication of the expenditure limit by Canadian-controlled private corporations with common control. If enhanced support were extended to public corporations, how should relationships among legal entities be delineated?
- Current global initiatives rely on accounting concepts of relationship and control to determine whether entities are included in a large business corporate group. Should existing international practices of this sort be adapted for determining relations for public corporations in the context of the SR&ED program?
- What is the optimal size-based metric (e.g., taxable capital employed in Canada, revenue) to phase out enhanced support for public corporations, including those in a corporate group?
- How does refundability under the SR&ED program influence investment decisions and planning? To what degree would Canada become a more competitive location to undertake research and development (R&D), compared to other jurisdictions, if credits earned at the general rate were partially or fully refundable?
- Would it be preferable that the government make the general rate refundable, but at a reduced rate? What would be an acceptable trade-off in this regard?
- In your view, should SR&ED-eligible activity be broadened from the existing OECD definition of SR&ED, generally used by Canada and other countries offering R&D tax credits? If so, how would you propose to amend the current definition? Why would any additional activities warrant government support?
- Can you provide specific examples of activity that you think should be eligible for the SR&ED program that are not currently eligible? Would such a change bring additional predictability to claimants?
- How could the SR&ED program be enhanced to support businesses conducting R&D in the digital age, particularly in respect of software development and the emergence of artificial intelligence?
- To what extent do businesses face financial challenges and trade-offs in protecting their intellectual property (IP) in Canada and abroad? Would it be appropriate for the government to provide additional support to these activities under the SR&ED program? If so, what would be a cost-effective approach?
What’s next?
The Department of Finance will review feedback from this consultation process alongside ongoing analysis as the government works to enhance the SR&ED program and target the additional funding announced in Budget 2024 to boost research and innovation.
While consultations have now concluded, Canadians are welcome to share their ideas and comments with the Department of Finance at any time.
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