Innovation is a cornerstone of the federal government’s plans to create economic growth in Canada. In fact, the March federal budget trumpets innovation as one of the key ways the government intends to “strengthen our capacity for world-leading research, improve commercialization, accelerate private sector investment, enhance the ability of Canadian firms to participate in global markets, and create a more competitive business environment.”
A number of recent announcements have followed that promise to improve the Scientific Research and Experimental Development (SR&ED) tax incentive. Many Canadians are not aware this program distributes over $4 billion in tax credits annually to more than 18,000 Canadian businesses.
Tax credits delivered in a timely and consistent manner help make products and processes more innovative, yet the program has been criticized for inconsistent claims approvals and delays in delivering credits.
An in-depth review commissioned by the National Revenue ministry delved into these issues and the Canada Revenue Agency (CRA) has been actively working to strengthen the program’s administration. For example, to ensure policies and procedures are aligned with current business practices and consistently applied across the country, the CRA is clarifying and consolidating policies, improving claim processes and forms, enhancing communications, reviewing appeal procedures and augmenting auditor training.
This process continues, but a number of improvements are now in place that may help manufacturers wishing to take advantage of the program.
The CRA is addressing consistency concerns with a new Claim Review Manual that streamlines audit procedures. Since the claim review process is highly subjective, it’s hoped this tool will contribute to more consistent reviews and approvals. The manual sets out comprehensive procedures for the CRA to explain the program’s requirements, processes and decisions. It also describes procedures CRA auditors can use to inform claimants of other potential SR&ED claims not included in the original submission and to provide an opportunity to resubmit within the filing deadline.
The manual includes sections on planning and preparing for a review, conducting on-site meetings and communicating, reporting and finalizing results. There are also sections describing how to work with claimants and their representatives, there’s a taxpayer bill of rights and descriptions of the mutual expectations of claimants and CRA advisors who evaluate the eligibility of the work. A condensed version of this manual is available at www.cra-arc.gc.ca. To promote the timely resolution of claims, the CRA will begin in July to report the time required to review an SR&ED claim from start to finish.