Changes to the SR&ED Program recommended by the Jenkins Panel

Posted on Oct 17, 2011
The Jenkins Report on Government spending on R&D in Canada was released today. The panel recommends that the government reduce its funding of SR&ED in order to fund other projects recommended by the panel. However, this may not mean that you receive less SR&ED funds.

Recommendations regarding the SR&ED program if adopted by the federal government would be slowly phased in. The most significant recommendations are to (i) restrict CCPC claims to the labour component of R&D, (ii) reduce the refundable portion of the claim over time and (iii) to allow the CRA to provide pre-claim approval – we like this one especially.

Restricting claims to the labour component alone means that salaries and wages, contractor labour costs and the proxy overhead would continue to be eligible expenses. Costs incurred for materials and equipment would no longer be eligible however the panel recommends that the percentage of labour credited be increased above the 35% rate currently, to offset this change. So really, most CCPCs may be unaffected by this change.

Reducing the refundable portion of the credit for CCPCs is targeted at reducing the number of CCPCs who rely on the SR&ED refund merely to survive. The panel wants R&D funding to be targeted at growth oriented firms. Therefore only if a firm becomes profitable will it be in a position to really benefit from the SR&ED credit. The idea is to move to a more performance-based approach for CCPCs.

A formal ruling by the CRA on eligibility of a project in advance of making a claim is an excellent recommendation and would be very helpful for most companies.

These changes will initially have little impact on most of our customers. Please note that these changes are recommendations only. The federal government would need to consult with the Provincial governments before any changes were made. Even then such changes would be implemented gradually. We’ll be talking to government officials and the CRA to understand whether any of these changes are likely to be implemented.

The panel leaves SR&ED for large firms alone. Its main objective is to shift finance for smaller companies from indirect SR&ED finance to more direct IRAP type finance.

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