Developments: Scientific Research and Experimental Development (SR&ED): Enhancing Global Competiveness

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Tax incentives have become one of the main instruments of innovation policy for industrialized nations. In contrast to grants or subsidies, these incentives encourage domestic R&D spending by businesses without industry or technological targeting.

To remain competitive in a global market, many G20 countries offer greater R&D tax incentives to businesses. Their objectives for doing so include:

• Fostering innovation
• Retaining and attracting multinationals to invest in R&D
• Boosting economic activity
• Providing access to financing for R&D
• Boosting competitiveness
• Increasing the country’s overall attractiveness for investment
• Stimulating/maintaining employment levels; and
• Raising the standard of living

R&D and innovation are considered key to productivity and enhancing Canadian competitiveness. Canada’s Scientific Research and Experimental Development (SR&ED) program continues to be one of the most generous and stable tax credit programs among the industrialized nations. In 1986, the federal government introduced a refundable investment tax credit (ITC) program for Canadian-Controlled Private Corporations (CCPCs). The Canadian program is attractive because it provides a generous 35% refundable ITC to small and medium-sized CCPCs, while other corporations earn a nonrefundable ITC of 20%. Furthermore, the Canadian SR&ED program allows all directly related current expenditures to qualify for ITCs, including labour, contractors, overhead, certain lease costs and materials (consumed and transformed). In addition, the capital cost of machinery and equipment used all or substantially all in SR&ED in Canada also qualifies for ITCs and can be written off in full in the year of acquisition.

Read the PDF  to learn about the issues and effectiveness of R&D tax incentives around the globe and how Canada’s program compares.