DoF Consultation: Help Modernize Canada’s SR&ED Program

Consultation | Feb 1, 2024

Canada's Department of Finance Seeks Input on Modernizing SR&ED Program and Introducing Patent Box Regime

The Scientific Research and Experimental Development (SR&ED) program in Canada is undergoing significant changes and consultations in 2024, with a focus on modernizing the program to better support research and development activities in Canada. The program has been a cornerstone of federal funding for innovation in the country, providing support to firms engaged in R&D activities and in the development of valuable intellectual property.

About SR&ED

The SR&ED program is a key part of Canada's innovation strategy, offering tax incentives to a wide range of businesses for their R&D activities. In 2021, it provided $3.9 billion to over 22,000 Canadian businesses.

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• A notable aspect of the SR&ED program is its comprehensive coverage of various eligible expenditures. These include labor costs, contractor fees, materials, and overhead expenses that directly relate to R&D activities aimed at resolving technological uncertainties or challenges.
• The program offers different levels of funding for these expenses, such as up to 69% for eligible labour costs and up to 45% for materials consumed in R&D activities.
• In terms of the application process, the reporting deadline for the SR&ED program is set at 18 months from the end of the tax year in which the qualifying expenses were incurred.
• Additionally, there are also provincial and territorial variants, offering additional support with their own criteria and funding amounts. For instance, Canadian-Controlled Private Corporations (CCPC) may earn a refundable Investment Tax Credit (ITC) at the enhanced rate of 35% on qualified SR&ED expenditures up to $3 million.

Consultation

The review process for SR&ED involves gathering insights on how the program can better align with Canada's broader R&D goals. This includes exploring ways to enhance the retention of intellectual property within Canada, potentially through a patent box regime.

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Stakeholders from various sectors, including technology and research, are contributing perspectives, emphasizing the need for reforms to further incentivize innovation while ensuring the program's benefits extend across the Canadian economy.

1. Patent Box Regime

The Canadian government is consulting on the creation of a patent box regime to enhance research and development (R&D) and intellectual property (IP) retention in Canada. This consultation focuses on how such a regime might best support innovation, the specific design features of a patent box, and its integration with the broader tax system. The goal is to create a policy that incentivizes R&D and the commercialization of resulting IP in Canada.  For a detailed understanding of these consultation questions, you can visit the page here.

2. Cost Effective Ways to Modernize the SR&ED Program

The Canadian government is soliciting feedback on how to modernize and improve the program, focusing on its effectiveness in supporting R&D investments, refining eligibility criteria, enhancing the complementarity with other R&D support programs, targeting overall assistance more effectively, ensuring IP retention within Canada, simplifying access for entrepreneurs, and determining the best use of existing support. Stakeholders are invited to contribute their insights. For more information, you can visit the consultation page here.

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The government's ongoing review and consultation process for SR&ED is expected to further refine and enhance the program, ensuring that it effectively supports Canada's R&D landscape and positions the country as a leader in innovation.

Reaction

The Council of Canadian Innovators (CCI) issued a statement regarding the Department of Finance's announcement about reviewing the Scientific Research and Experimental Development (SR&ED) Tax Credit and exploring a patent box regime.

Nicholas Schiavo, CCI's Director of Federal Affairs, emphasized the critical role of the SR&ED tax credit in driving innovation and economic activity in Canada. CCI advocates for reforms to prioritize Canadian firms and expand eligibility criteria to cover intellectual property costs related to R&D. The potential patent box policy, aimed at boosting IP generation and commercialization in Canada, is also seen as a positive development. CCI remains optimistic about the consultation process and its implications for Canada's innovation economy.

Share Your Feedback By April 15, 2024

All Canadians and stakeholders are invited to share feedback by emailing SRED-PB-RSDE-RPB@fin.gc.ca by April 15, 2024, with either “SR&ED Review” or “Patent Box” as the subject line.

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• Source: https://ncfacanada.org/dof-consultation-help-modernize-canadas-sred-program/