The Federal government has introduced their first budget, as a majority government, keeping innovation at the forefront. In fact a whole chapter of the Federal Budget released yesterday discussed increasing provisions for innovative startups, small businesses and entrepreneurs.
One area, which was highly anticipated, was the $7 billion annual innovation funding pool, over $3.6 billion of which is provided under the Scientific Research & Experimental Development (SR&ED) program. Prior to introducing the 2012 budget, the federal government hinted that they would make major changes to the SR&ED program per the recommendations of the Jenkins Panel to support a more direct funding model from the savings created.
Impact on SR&ED:
Eliminate tax credits on eligible capital expenditures (such as machinery, computer equipment, etc.) incurred after January 1, 2014. The impact to most small-medium enterprises (SME’s) is minimal as they typically do not have large capital expenditures dedicated to R&D activities. However, this move might impact certain industries such as pharmaceuticals or manufacturing.
- Decrease the proxy amount applied to labour expenditures for R&D from 65% to 55% to be phased in by January 1, 2014
- Lower the arm’s length (non-related 3rd party) subcontractor expenditures allowed under the SR&ED program to 80% of the expenditures incurred.
- Lower the federal rate from 20% to 15% for large corporations. This doesn’t affect organizations that qualify for the 35% credit.
More direct funding to support innovation:
- Announcement of a Western Innovation Program which will provide financial support to innovative small and medium-sized enterprises in Western Canada
- $400 million for venture capital activities for private sector investments through a structure yet to be determined
- $100 million to the Business Development Bank of Canada to further support venture capital activities
- $110 million per year in additional funding to the NRC-IRAP program which supports research and development projects carried out by small and medium sized businesses
- $205 million to extend the temporary hiring credit for Small Business
- $95 million over 3 years, starting in 2013-14, and $40 million per year thereafter for the Canadian Innovation Commercialization Program to connect innovative SMEs to federal departments through procurement
- $50 million over 2 years to the Youth Employment Strategy to assist more young people to get skills and experience
- $14 million over 2 years to double the Industrial Research Development Internship Program delivered through Mitacs
- Announcement of a new Business Immigration Vision to attract innovative entrepreneurs to grow their businesses in Canada
Overall, the Budget commits to driving innovation and entrepreneurship, by streamlining the SR&ED program and introducing new funds to support R&D and commercialization, which is great news for Canadians.