Deloitte report places SR&ED in global context

A new report that provides a global comparison of Canada's tax regime for corporate R&D has been released in advance of the report by Expert Panel Review of Federal Support to Research and Development, which was released today. The Deloitte & Touche report is the first to provide a comprehensive comparison of Canada's system of tax incentives for industrial R&D — dominated by the scientific research & experimental development (SR&ED) program —to 26 other countries.

Entitled Global Survey of R&D Tax Incentives, the report finds that Canada's SR&ED program is the third most generous after tax incentive regimes in France and Ireland. It notes that there has been an explosion in the use of R&D tax incentives throughout OECD nations, increasing from 12 countries in 1996 to 30 in 2011. Claims for SR&ED tax credits totalled nearly $4 billion in annual foregone revenue and accounted for more than half of the estimated $7 billion the federal government spends annually in support of business R&D.

While Canada's tax incentives do not contain any rules regarding intellectual property (IP), several countries make the retention of IP in the country a condition of eligibility. These include Germany, China, Japan, Australia, Belgium and Turkey. In the UK, the restriction applied to smaller firms.

Canada allows 10% of SR&ED- eligible work to be conducted outside of the country, compared to a 40% limit in China. Some countries (Japan, Korea, Italy, UK, Portugal, Belgium) have no restrictions on where the R&D is performed while the European Union allows the work to be performed in any of its member nations.

In Canada, UK and Australia, claims made by smaller qualifying firms are completely refundable. France, Ireland and Austria allow some degree of refundability regardless of firm size in which unused tax credits can be converted into cash.

The report notes that because of differences among countries, companies may conduct components of their R&D that do not qualify under SR&ED in other countries to gain access to their incentives.

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