Federal R&D tax incentive system earns mixed grades

The report card is out. The question is, did the Canadian Customs and Revenue Agency (CCRA) pass?

The CATA Alliance, a collection high-tech industry firms and entrepreneurs, recently released its second report card which rates the consistency and performance of CCRA’s Scientific Research and Experimental Development (SR&ED) tax credit program.

The program offers tax incentives to Canadian companies engaged in on-going research and development.

CATA first surveyed firms across three years ago and discovered SR&ED branches provided inconsistent service and were confused over the interpretation of federal rules regarding valid SR&ED projects. The results were published in CATA’s first report card.

Russ Roberts, senior policy director with Ottawa-based CATA and a member of the team that prepared the report card, said things have improved — somewhat. “What we see this year in the feedback we are getting from our members is that there is significant improvement,” he said. “But at the same time, there’s probably room for improvement, particularly in some offices.”

The report, released July 5, found a significant number of companies across Canada felt they were getting inconsistent results from SR&ED’s science advisors. Their approval ratings were as high as 60 per cent in British Columbia and eastern Ontario.

However, a quarter of SR&ED’s national office received a “poor” to “very poor rating.” Overall, 52 per cent of CATA members indicated some improvement in the management of the SR&ED program – with the notable exception of Toronto’s urban core, where 20 per cent of respondents actually reported a worsening of SR&ED efforts (although 20 per cent reported improvements).

To address the issue, Roberts said CATA is encouraging its members to return to their region’s SR&ED management. “The key here is when there are problems, to get them resolved quickly,” he said. Roberts said he felt members were listening and disputes were dealt with properly as a result.

Norine Heselton, a director general “on loan (to the CCRA) from the private sector” to help organize the SR&ED program said the report shows the results of her work. “When I came onboard in 1999, there was no organization,” she said. “I’m gratified that the report in fact notes that 52 per cent of the respondents reported an improvement in the management of the program.”

Roberts said the CCRA has released detailed guidelines that explained which SR&ED projects qualified for tax credit and provided a list of procedures regional managers are required to follow. “With all the guidance and products that people definitely felt were needed, they’re there,” said Roberts. “So we’re at that stage where they should take hold. The question is, to what extent will they take hold?”

That said, Roberts believes with the SR&ED program moving from an audit-based system to focus on client service and incentive base, there’s bound to be problems. “I would expect with such a major change, that there will be variables as management takes hold.”

Heselton noted that there was more work to do. “There were no surprises in the report and we will be following up with CATA to get down under some of the numbers,” she added.

The Canada Customs and Revenue Agency is at http://www.ccra.ca. CATAAlliance, in Ottawa, is at http://www.cata.ca.