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Tax incentive program remains untapped (7/03)

The scientific research and experimental development tax incentive program (SR&ED) can be considered a bottomless pit, says a federal scientist.

The scientific research and experimental development tax incentive program (SR&ED) can be considered a bottomless pit, says a federal scientist. The program remains underutilized by companies active in scientific development since many are unaware of its existence or how to apply for such programming, he adds.

“It is Canada’s single largest source of finance in the industry research and development,” Dr. Basu Gantotti, national technology sector specialist for plant, agriculture and forestry at the Canada Customs and Revenue Agency says.

The program was developed to assist all industry sectors in R&D so they can in turn improve their global competitiveness.

“Companies with a high growth rate seem to correlate directly with R&D activities,” Gantotti says.

Approximately 11,000 companies make use of the program, however, a lot more could capitalize on the incentives, Gantotti says.

There is no cap on the program. Right now approximately $1.5 billion is given as cash refunds and tax credits, Gantotti says.

“It is hard to believe that Revenue Canada hands out that kind of money to companies,” Gantotti says.

By meeting the program requirements, organizations could be entitled to write off 100 per cent of the R&D expenses they have incurred, while actively contributing to R&D and education, Gantotti says.

In addition, small companies receive up to 35 per cent of their investment back.

“You get a cheque back from Revenue Canada,” he says.

Large companies or multi-nationals receive 20 per cent back in the form of tax credits.

For example, for every $100,000 a company spends on new research and development, they receive $24,000 to 25,000 net benefit.”

There are three categories in which different organizations can access the incentive program.

The first is the basic research incentive, which applies to institutions attempting to explore some research and development areas.

The second is applied research where organizations are required to be specific in the research developments.

The third is called experimental development. This is mostly conducted by the industries, Gantotti says. For example, medicinal plants growing throughout Canada can be considered a biotechnological development. In order to find out how to use plant properties for health purposes, how to harvest, market and ultimately profit from them, companies require funds. That is where SR&ED program assists organizations, Gantotti explains.

Companies also wanting to enhance existing products can also take advantage of the incentive.

“Anything you do to achieve your business goals in terms of developing or advancing technology, you qualify for this program,” Gantotti says. It is easy to qualify for the program, he adds.

“You have to be in Canada. As long as you are present in Canada, spend money in Canada, and do the work in Canada, you qualify.”

The definition of R&D and education is as follows, Gantotti explains.

“It is the systematic investigation or research carried out in science or technology, by means of experimental analogy.”

Companies doing this in partnership with qualified people, and with the intention of making scientific or technological advancements, will be considered in the application process.

However, many Canadian companies are not familiar with the SR&ED development program.

“A lot of forest groups, including the ones in bio-products, do not think for a moment they are doing research and development. You must recognize your own work and see how you can explore this program to help you financially with R&D activities.”

Gantotti explains Canadian tax dollars are funding the program, so that innovative ideas can spring into viable jobs.