The Association of Equipment Manufacturers wants the CRA to fix how it assesses SR&ED applications

Mark Mann
February 12, 2020

The Scientific Research and Experimental Development Tax Incentive Program (SR&ED) is supposed to encourage investment in innovative R&D by Canadian companies, but equipment manufacturers say the program doesn't work for them.

In a request submitted to finance minister Bill Morneau ahead of the upcoming budget, the Association of Equipment Manufacturers (AEM) has asked the Canada Revenue Agency (CRA) to update and clarify the rules governing access to the SR&ED program for equipment manufacturers.

The AEM points to the usual frustrations with the SR&ED program: that the administrative burden of applying is too great and undermines the final value of the incentive. Worse, too few applications succeed, and the risk of not receiving a return on the administrative investment is scaring off firms from applying at all.

The problem, they say, lies with how the CRA qualifies R&D by equipment manufacturers, for whom the research and development process differs from other sectors. Equipment manufacturers, such as in the agri-food or forestry sectors, approach the development of a new machine based on conditions like environmental factors or need in the marketplace: for example, a larger haybine that can operate on smaller roads. However, since the people seeking an innovative solution to such a problem may be drawing on their intuition and experience, rather than working from a scientific hypothesis and building on an academic or specialist education, their applications to the SR&ED program are more likely to be rejected.

These issues were previously described in a document called the Income Tax Information Circular, Machinery and Equipment Industry Application Paper (94-2), which provided a tool for assessors unfamiliar with the sector. It stated: "Within this industry sector, many organizations do not have technical specialists who have recognized (licensed) designations. However, this does not limit the ability of the claimant's personnel with the knowledge and experience to develop machinery and equipment through applied research or experimental development.” That circular was withdrawn in 2010, however, and the AEM wants it updated and republished, so that Research and Technology Advisors at the CRA can assess applications from equipment manufacturers more appropriately.


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