Canada needs a more aggressive approach to spur innovation, investment: CME

Canada must strengthen its support for research and development (R&D), commercialization, and advanced technologies to sustain the economic recovery and remain a competitive location for business investment, according to a new report by Canadian Manufacturers & Exporters (CME).

In particular, the study highlights proposed changes to the popular Scientific Research and Experimental Development (SR&ED) tax credit, noting that – if implemented – they will significantly increase the taxes paid by Canada’s top R&D performers and erode the international competitiveness of Canada’s tax system. The government plans to reduce the tax credit rate from 20 per cent to 15 per cent and eliminate the eligibility for capital expenditures.

“Canada’s top R&D performers are multinationals, and they have a choice of where to invest,” CME president & CEO, Jayson Myers said in a statement. “Other countries – including emerging markets like India and China – are competing fiercely for this investment. In Canada, we have decision to make: Either we adopt policies that build a strong knowledge- and innovation-based economy, or we simply stand idle as our most R&D-intensive companies take their investment, and jobs, to other jurisdictions.”

For companies using the SR&ED program, the cost of investing in R&D will increase by 5.9 per cent, bumping Canada from 13th down to 17th on the list of Organisation for Economic Co-operation and Development (OECD) nations in terms of tax competitiveness.

A separate CME study released in October found that seven in 10 manufacturers would reduce overall R&D activities if capital expenditures were removed from the SR&ED equation, and two in 10 would shift R&D to other, more alluring destinations.

“Without a doubt, these changes will severely damage Canada’s innovation performance, and will deter both domestic and international companies from investing in R&D and large product mandates within our borders,” says Myers. “SR&ED itself is an investment – a public investment in Canadian manufacturing, Canadian technology, and Canadian employment. Very few programs have had such a wide adoption or significant return.”

CME continues to work closely with officials from the Department of Finance to develop alternative mechanisms that will encourage businesses to invest in R&D and commercialization, and to do so in Canada.

To download a full copy of the report, visit http://bit.ly/RDcanada.