Searching for superior SR&ED

The Council of Canadian Innovators (CCI) has added its voice to the chorus of calls for changes to Canada’s Scientific Research and Experimental Development (SR&ED) program. Usually referred to as “shreds”, this longstanding federal initiative provides tax credits to businesses and individuals engaged in activities regarded as essential to developing or improving products and services. With roots that date back to the 1940s, SR&ED has been revised several times in the wake of policy reviews, such as the 2011 report led by Open Text Chair Tom Jenkins.

CCI advocates on behalf of some 150 companies across the country, outlining strategies that would increase their ability to find talent, capital, and markets. The organization's policy brief, released in September, describes six specific recommendations to improve the efficiency and effectiveness of “an important tool for innovators who are growing and creating well-paying jobs in the domestic technology ecosystem”.

Brief co-author Nick Schiavo, CCI’s Director of Federal Affairs, explained to Research Money that SR&ED does not need to be overhauled or replaced, but it does need to be updated.

“It needs to be in tune with the reality of 2022, both in terms of how technology is developed but also just in terms of how this application should run,” he said.

He pointed to something as simple as an auto-load function for the on-line form, as is commonly found in other federal government programs. This simple technical feature means applicants only have to enter their information once, and it will  seamlessly appear the next time a form is activated.

That might sound like nit-picking, but Schiavo regards such an omission as just the most obvious instance of the program’s clumsy, often confusing interface. He adds that the sheer challenge of dealing with the application has spawned a significant cottage industry of SR&ED consultants within Canada, who take money from smaller firms struggling to figure out how to submit a claim for their innovative work.

“Let’s say students applying for a grant or a loan to go to school had to go and hire consultants to complete that application,” Schiavo suggests by way of comparison. “That would be insane, it would be counterproductive. That’s what’s happening in SR&ED in 2022.”

Read more: “SR&ED program requires major reforms to stimulate business R&D: policy brief”

The CCI brief argues that the task of making SR&ED more user friendly could be achieved by the government officials who oversee the program. However, Schiavo insists that this move would have to be accompanied by some additional training to help these officials acquire a more accurate sense of who the program is serving.

“We want to see this focus on up-skilling public servants, so that they better understand our ecosystem,” he says, agreeing with a comparison to the expertise wielded by Industrial Technology Advisors who have made the Industrial Research Assistance Program a model for this approach.

In a similar way, CCI is calling for a better appreciation of the role that continuous improvement plays in innovation. Time-consuming, expensive trials are often essential to honing new products or services to compete in a market, but this less-glamourous side of “commercialization” is all too easy to dismiss or overlook.

“It’s not always a new invention,” Schiavo said, noting that continuous improvement can be the defining factor of a firm’s success. “If we’re going to ask companies to develop these products, these services, and invest millions of dollars, we need to ensure that there’s a path to commercialization and that we actually understand what that looks like.”

No less important, he emphasized, is the competitive advantage maintained by a firm’s intangible assets, specifically its intellectual property. Schiavo said CCI applauded the 2022 federal budget’s commitment to this key resource, and the time has come for specific measure such as a “patent box”, which would provide firms with a tax break on income generated from their Canadian patent portfolio. For him, this move would represent two fundamental accomplishments.

“The first is that it would incentivize Canadian companies and organizations to maintain their patents here, instead of off-shoring to somewhere where there’s a lower tax framework,” concluded Schiavo. “It also ensures that companies can maximize the value of a patent, making this more attractive for shareholders or investors.”

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