Broadening the New Review of Tax Support for R&D

April 26, 2022

Canadians concerned about our lacklustre innovation performance were cheered by the budget announcement that the Scientific Research and Experimental Development (SR&ED) program would be reviewed.

Canada’s business research and development performance is dismal, ranking 26th in the 37-member OECD. In 2019, business R&D spending represented just .81 percent of GDP, the lowest in the G7. Canada ranked higher, 20th, in terms of total assistance for R&D, suggesting effectiveness is more of an issue than the volume of support.

The budget announcement highlights concern about the program’s effectiveness in encouraging R&D, but restricts the scope of the review to simplifying the program and changing the criteria for work to be eligible for credits.

This is too narrow.

At best, only small gains in effectiveness will be obtained through simplification and by tweaking eligibility requirements. The scope of the review should be broadened to include rebalancing support provided by size of firm, among other issues.