The CATA Alliance is calling on the federal government to change the rules for its flagship R&D assistance program to allow publicly traded firms access to large pools of unused tax credits. CATA contends that many of these firms are suffering badly due to the current high tech slowdown and could go into bankruptcy if R&D assistance is not made available.

“Many of these firms are earning significant tax credits at a point in time when some of them are going under,” says Russ Robert’s CATA’s senior policy director. “The simple solution would be to allow the public firms to have the same provision of refundability as the CCPCs (Canadian Controlled Private Corporations).”

There are two tiers of eligibility under the regulations of the scientific research and experimental development (SR&ED) tax assistance program. CCPCs earn 35% refundable tax credits for eligible R&D they perform. In contrast public firms earn 20% non-refundable tax credits, meaning they cannot use the credits when they are unprofitable. The high-tech slump has effectively prohibited unprofitable firms from using their earned tax credits at a time when CATA asserts they need them the most.

If the Finance department won’t agree to extending CCPC provisions to public firms, Roberts says there are other models to consider. Sweden once employed a system under which firms could build up pools of R&D tax relief and draw on them in difficult times, effectively acting as bridge financing.

“CCPCs do this and they also use the credits to help attract financing,” he says. “But there are policy reasons for the Canadian structure. The 20% non-refundable tax credit for public firms is designed to encourage profitability, and to attract investment in R&D where there will be manufacturing.”

Roberts says CATA officials will be discussing their proposal with Finance in the near future to determine whether changes can be made quickly. “Firms need their entitlement at this point in time,” he says.

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