Pressure mounting on Canada to attract foreign investment

With Canadian foreign investment on the decline, the time is now to revamp the tax incentives for research and development, says a study conducted by The Conference Board of Canada.

The study, which was released yesterday, was compiled into two parts, with the first examining the relationship between R&D intensity and the tax treatment of R&D in Canada’s Information Communications Technology (ICT) sector. The latter half consisted of two focus groups composed of representatives from Canada’s ICT organizations.

The findings revealed that the incentives in Canada’s Scientific Research and Experimental Development Program (SR&ED) does make a difference to Canadian companies in helping them establish R&D centres of excellence, grow start-up companies and in attracting qualified people for R&D work.

In essence, while Canada did have one of the most advanced systems in promoting R&D tax incentives, international competition has become fierce. The number of Organization for Economic Cooperation and Development (OECD) countries that offer R&D tax credits has jumped from 10 to 16 since 1996. Most recently, the United Kingdom and Norway joined the ever-expanding list, and Australia stepped up its tax concession by offering an additional 175 per cent incentive on incremental R&D expenditure.

“In 2000 Canada attracted 3.1 per cent of global direct foreign investment down from 6 per cent in 1990 and 8.8 per cent in 1980,” said Gilles Rheaume, vice-president policy at the Conference Board of Canada in Ottawa. Canada ranks 14th among the OECD counties, he added.

Rheaume argued that the SR&ED system – established in 1985 – needs to have its goals re-defined. Some of the suggestions the Conference Board made included: making refunds of the SR&ED tax credit available to all countries; upgrading the objectives of the program; and to improve the process of administration for accessing the R&D tax credit. Another suggestion put forth included making the tax credit refundable in cash.

What has necessitated the need for change, said Gaylen Duncan, president and CEO of the Information Technology Association of Canada (ITAC) in Ottawa, is the current economic slow down the ICT sector has been facing. With one-third of all R&D spending consumed by this sector, and “as the largest investor in the Canadian economy, the ICT industry is the most experienced user and beneficiary of Canada’s programs of R&D tax incentives,” he said.

ITAC, along with IBM, Microsoft Corp., and Ernst & Young LLP, partnered with Industry Canada to conduct the formal assessment of Canada’s R&D taxation plan.

ITAC in Ottawa can be reached at

The Conference Board of Canada is at

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