Analysis: Trends in CRA Reports to Parliament Regarding SR&ED
The Canadian Parliament in Ottawa. Photo by Saffron Blaze, via http://www.mackenzie.co licensed under CC BY-SA 3.0.
Since 1999 the Canada Revenue Agency (CRA) has provided the Canadian Treasury with “a comprehensive report on the performance of the CRA for the previous fiscal year, and a discussion of the CRA’s achievements against the key targets and indicators set out in our Corporate Business Plan and Departmental Plan.” Initially, the CRA would produce both an Annual Report to Parliament and a Departmental Performance Report, however, the Annual Report to Parliament was discontinued in 2015 to avoid duplication.1
The Canada Revenue Agency (CRA) is:
Responsible for administering, assessing, and collecting hundreds of billions of dollars in tax revenues annually. The money the CRA collects is used by federal, provincial, territorial and First Nations governments to fund important social programs, provide essential services, and build and maintain the infrastructure needed for continued economic prosperity. The CRA also directly delivers billions of dollars in benefits and tax credits that contribute to the well–being of Canadian families, children, seniors, and persons with disabilities. 2
Prior to 2015, the CRA was required to provide an annual report to the Treasury Board of Canada that detailed their income, expenditures, program improvements, and other details regarding the organization. Departmental Performance Reports replaced the CRA Annual Report to Parliament after the final, 2014 Annual Report was published
- The CRA’s Annual Reports to Parliament and Departmental Performance Reports: Detailed Reports
- Analysis
The CRA’s Annual Reports to Parliament and Departmental Performance Reports: Detailed Reports
In the following section, we’ve compiled excerpts from the CRA’s Annual Reports to Parliament and the Departmental Performance Reports that are relevant to the SR&ED program. This table also shows the value of SR&ED credits refunded to claimants and the number of claimants, based on the information provided in the reports. We have also included the results of our own calculations to show the difference in the SR&ED amounts and the refund average, based on if each claimant received an equal amount of SR&ED tax credit.
Click the year to see the full summary.
| Fiscal Year Start (May 1) | Fiscal Year End (April 30) | Refund ($B) | Difference ($B)* | Difference (%)* | # of Applicants | Refund Average per Applicant* |
|---|---|---|---|---|---|---|
| 2005 | 2006 | $1.8 | ||||
| 2006 | 2007 | $3.0 | $1.2 | 66.7% | 18,000 | $166,666.67 |
| 2007 | 2008 | $4.0 | $1.0 | 33.3% | 18,000 | $222,222.22 |
| 2008 | 2009 | $4.0 | ($0) | (0%) | 18,000 | $222,222.22 |
| 2009 | 2010 | $3.3 | ($0.7) | (17.5%) | 21,000 | $157,142.86 |
| 2010 | 2011 | $3.5 | $0.2 | 6.1% | 21,000 | $166,666.67 |
| 2011 | 2012 | $3.6 | $0.1 | 2.9% | 23,000 | $156,521.74 |
| 2012 | 2013 | $3.6 | ($0) | (0%) | 28,140 | $127,931.77 |
| 2013 | 2014 | $3.3 | ($0.3) | (8.3%) | 24,794 | $133,096.72 |
| 2014 | 2015 | $3.1 | ($0.2 ) | (6.1%) | 24,302 | $127,561. 52 |
| 2015 | 2016 | $3 | ($0.1) | (3.2%) | 22,839 | $131,354.26 |
| 2016 | 2017 | $2.7 | (0.3) | (10%) | 21,000 | $128,571.43 |
2016-2017
Source: Government of Canada. The Honourable Diane Lebouthillier, P.C., M.P. Minister of National Revenue. (2017.) 2016-17 Departmental Performance Report. Scientific Research and Experimental Development. pg. 60. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/corp-info/aboutcra/dprtmntl-prfrmnc-rprts/2016-2017/drr17cra-en.pdf
The CRA provides tax assistance and investment tax credits to Canadian businesses as an incentive to conduct qualifying industrial research and development activities and film or video production activities in Canada. Of note is the fact that the Agency’s Scientific Research and Experimental
Development (SR&ED) Program is one of the largest government programs to support research and development in Canada, significantly advancing one of the Government’s key strategic priorities.Through the SR&ED Program (and the Film and Media Tax Credits Program), the CRA ensures that all claims comply with applicable legislative requirements and government policies. The Agency also ensures that applicants have the information and timely services they need to access investment tax credits and that the tax credits or cash refunds are delivered in a prompt, consistent, and predictable manner.
We process approximately 21,000 claims every year under the SR&ED program. Meanwhile, approximately 6,500 claims are processed each year for the Film and Media Tax Credits Program.
In 2016, the Agency launched two services to give businesses, especially small and medium-sized enterprises, a degree of certainty about their eligibility for SR&ED tax incentives before filing a claim.
- A pre-claim consultation service began in June 2016 and provides potential SR&ED tax credit claimants with an evaluation of whether their research and development work would generally qualify as scientific research or experimental development under the Income Tax Act. The service
is provided only at the request of the potential claimant and is based on the information that the claimant provides.- In August 2016, a pre-claim review process was launched. This service gives claimants, on request and before a claim is filed, a determination of how much research and development work undertaken by the claimant would be eligible under the SR&ED program, and what specific expenditures would qualify for the SR&ED tax credits. Unlike the pre-claim consultation
service, the pre-claim review involves an analysis of the extent of the work conducted by the potential claimant.Key Results
In 2016-2017:
- Our SR&ED program provided more than $2.7 billion in investment tax credits in support of industrial research and development.
- Total dollar fiscal impact for SR&ED was $349 million.
2015-2016
Source: Government of Canada. The Honourable Diane Lebouthillier, P.C., M.P. Minister of National Revenue. (2016.) 2015-16 Departmental Performance Report. Scientific Research and Experimental Development. pg. 61. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/prfrmnc_rprts/2015-2016/dpr-2015-16-eng.pdf
2. Canada Revenue Agency. (2014.) Annual Report To Parliament 2013-2014. Scientific Research and Experimental Development. pg. 41-42. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2013-2014/ar-2013-14-eng.pdf
The Scientific Research and Experimental Development (SR&ED) Program provides tax incentives to Canadian businesses to do qualifying industrial research and development in Canada. The SR&ED program is designed to encourage businesses to do scientific research and experimental development by providing more than $3 billion in investment tax credits to over 19,000 claimants annually. SR&ED activity can benefit other businesses and the Canadian economy as a whole. The CRA’s role is to make sure all SR&ED claims comply with the law.
Based on the positive feedback received from claimants participating in the project testing of a formal pre-approval of their SR&ED claims, in 2015-16 the CRA evaluated the feasibility of implementing a full national rollout of this service. As a result, we developed a new pre-claim consultation service and a new pre-claim review pilot to provide predictability and further reduce the administrative burden on businesses making SR&ED claims.
The CRA launched a new strategy in 2015-2016 to focus on enhancing service, engagement, and outreach to those who could benefit from the SR&ED tax incentives. To increase awareness of the SR&ED program, we engaged other government agencies and departments serving clients who may benefit from accessing the SR&ED tax incentives. These partnerships sparked further collaborations, such as meetings with clients, key associations, and industry representatives. The CRA held two SR&ED symposiums last year in partnership with stakeholders to enhance compliance by meeting with tax preparers to identify and address emerging issues.
Key results
- Our SR&ED program processed 22,839 claims.
- Our SR&ED program provided more than $3 billion in investment tax credits in support of industrial research and development.
2014-2015
Source: Canada Revenue Agency. (2015.) Annual Report To Parliament 2014-2015. Scientific Research and Experimental Development. pg. 57. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2014-2015/ar-2014-15-eng.pdf
The Scientific Research and Experimental Development (SR&ED) program provides tax assistance and investment tax credits to Canadian businesses as an incentive to conduct qualifying industrial research and development activities in Canada. The CRA’s role is to make sure all claims under these programs are made in accordance with legislative requirements.
To reduce the administrative burden on companies making SR&ED claims, we continued our feasibility study of a formal pre-approval process for those claims. The study includes a three-year pilot project with businesses across Canada. The CRA worked to increase awareness of the SR&ED program in 2014-2015 through outreach and stakeholder engagement activities including the following:
- We posted four videos on the CRA’s YouTube channel, focusing on an overview of the SR&ED program, what type of work and expenditures qualify for the SR&ED tax incentives, how to calculate the SR&ED investment tax credit, and how to file a claim.
- We piloted webinars featuring current information and an explanation of the SR&ED program. The pilot was a success and, due to the positive feedback and overwhelming demand from participants, the CRA began providing these webinars on an on-going basis on April 1, 2015.
- We collaborated with other government departments, such as the Canadian Intellectual Property Office, Department of Foreign Affairs, Trade and Development, Export Development Canada, and National Research Council – Concierge Service, on cross-promotional opportunities for the SR&ED program.
- We partnered with the Chartered Professional Accountants of Canada and the Association de planification fiscale et financière to coordinate two symposiums to promote and discuss the SR&ED program.
- We continued to engage tax preparers and industry associations to address emerging issues related to the program.
Each year, the Agency processes over 24,000 SR&ED claims
Key results
- The SR&ED program processed 24,302 claims.
- The program provided more than $3.1 billion in tax assistance in support of industrial research and development.
- The CRA identified over $394 million in non-compliance.
2013-2014
Source: Canada Revenue Agency. (2014.) Annual Report To Parliament 2013-2014. Scientific Research and Experimental Development. pg. 41. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2013-2014/ar-2013-14-eng.pdf
2. Canada Revenue Agency. (2014.) Annual Report To Parliament 2013-2014. Scientific Research and Experimental Development. pg. 41-42. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2013-2014/ar-2013-14-eng.pdf
The Scientific Research and Experimental Development (SR&ED) program provides tax assistance and investment tax credits to Canadian businesses as an incentive to conduct qualifying industrial research and development activities in Canada. The CRA also administers film and media tax credits. The CRA’s role is to ensure all claims under these programs are made in accordance with legislative requirements.
We review the technical and financial aspects of all claims submitted to ensure the work and expenditures claimed meet the specific requirements of the Income Tax Act. We also focus on identifying high-risk claims and ensure the program operates as intended.
Because the scientific research and experimental development tax credit is the largest single source of federal government support for industrial R&D in Canada, we work hard to give applicants the information and timely access to services they need. Our goal is to make sure tax credits or cash refunds are delivered quickly, consistently, and predictably.
In 2013-2014:
- In January 2014, the SR&ED program launched the self-assessment learning tool. This online tool helps businesses determine if their R&D work meets the requirements for the SR&ED program. It includes focused questions, clear explanations, and tips on how to structure an SR&ED claim.
- The CRA introduced the First-Time Claimant Advisory Service. This service provides in-person help for first-time SR&ED claimants. Local CRA staff meet with first-time claimants at their place of business to help them to better understand the SR&ED program and to give them the tailored information they need for a successful claim.
- In January 2014, we began piloting webinars on the SR&ED program. These webinars are designed to complement the in-person seminars currently held across the country.
These new initiatives are designed to help SR&ED claimants successfully access the SR&ED program and benefit from the incentives it offers. By proactively supporting our clients and helping them become better informed, we are increasing their chances of a successful claim, reducing the time lost through processing delays, and lowering their administrative burden. This additional support is expected to give SR&ED claimants more opportunities to create jobs and grow Canada’s economy.
Key results:
- The SR&ED program processed 24,794 claims.
- The program provided more than $3.3 billion in tax assistance in support of industrial research and development.
- The CRA identified over $534 million in non-compliance.
2012-2013
Source: Canada Revenue Agency. (2013.) Annual Report To Parliament 2012-2013. Scientific Research and Experimental Development. pg. 51-52. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2012-2013/images/ar-2012-13-eng.pdf
The Scientific Research and Experimental Development (SR&ED) Program is an important federal tax incentive program administered by the CRA. It provides support to Canadian businesses to encourage research and development (R&D) in Canada. The SR&ED Program offers claimants tax incentives in the form of income tax deductions and investment tax credits based on their expenditures like wages, materials, and machinery on eligible SR&ED work done in Canada.
The Income Tax Act provides a definition of scientific research and experimental development and describes eligible SR&ED work and expenditures. We give information and services to help businesses determine if their R&D work and expenditures are eligible for these tax incentives.
We review the technical and financial aspects of all SR&ED claims. This is an important check to ensure that the program operates as intended and that SR&ED work and expenditures meet the specific requirements defined in theIncome Tax Act. Our focus is on identifying high-risk claims and using a more tailored strategy to address key areas of concern.
In 2012-2013, the CRA started work on a number of initiatives to improve the predictability and the accessibility of the SR&ED Program.
- The CRA released new, consolidated SR&ED policy documents and reorganized its SR&ED Web page content to present information in a more user-friendly way. The goal of this initiative was to make compliance easier by clarifying and simplifying SR&ED policies.
- The CRA is improving its self-assessment and learning tool, which is designed to assist businesses in determining the eligibility of their R&D work for SR&ED tax incentives. We expect to release this updated tool in 2013-2014.
- The CRA launched a pilot project to establish the feasibility of a formal pre-approval process (FPAP) for SR&EDclaims. The FPAP will provide better certainty to businesses on the eligibility of their SR&ED claims before filing. During the pilot, the CRA will be working with a number of businesses to receive feedback on FPAP.
- We increased our engagement with stakeholders by meeting with industry representatives to discuss and address emerging SR&ED program issues. These discussions will continue to be held regularly.
Our results indicate that more businesses are receiving tax assistance over time. In addition, we continued to meet our performance targets for our four service standards for the processing of SR&ED claims and requests.
Key results:
- The CRA provided more than $3.6 billion in tax assistance in support of industrial research and development
- The CRA processed 28,140 claims, compared to 28,993 in 2011-2012
- The CRA provided tax assistance to over 23,000 claimants through the SR&ED Program, an increase of 27% over the number of claimants who received tax assistance five years ago
- The CRA processed 96% of SR&ED refundable and non-refundable claims within 120 days and 365 days respectively, well above our target of 90%
- The CRA identified $404 million in non-compliance, compared to $424 million in 2011-2012
2011-2012
Source: Canada Revenue Agency. (2012.) Annual Report To Parliament 2011-2012. Scientific Research and Experimental Development. pg. 31. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2011-2012/images/ar-2011-2012-eng.pdf
In 2011, our Scientific Research and Experimental Development (SR&ED) program provided more than $3.6 billion in tax assistance to over 23,000 claimants, an increase of $100 million over the previous year. We also ensure that businesses prepare their claims in compliance with tax laws, policies, and procedures. As a result of those efforts, we identified and addressed $425 million of non‑compliance last year.
During 2011-2012, we continued to consolidate and clarify our current SR&ED policy documents and related guidance to help claimants better understand how the program works. Online public consultations ended in February 2012 and we expect to report the results in our 2012-2013 Annual Report to Parliament.
In October 2011, the Research and Development Review Expert Panel released its report to the Government of Canada on its review of federal support for research and development. The panel noted that the SR&ED program plays a fundamental role in lowering the costs of industrial Research and Development (R&D) for businesses, enhancing investment in R&D, and making Canada a more attractive place to locate R&D. The panel also provided recommendations to the Government of Canada on how to improve support for businesses and help them grow into larger, globally competitive companies. In the 2012 Federal Budget, informed by the advice of the Research and Development Review Expert Panel, the Government of Canada announced a number of legislative measures to simplify the SR&ED program and make it more cost‑effective, and administrative measures to enhance the predictability of the program. Over the next few years, the CRA will be implementing these measures.
2010-2011
Source: Canada Revenue Agency. (2011.) Annual Report To Parliament 2010-2011. Scientific Research and Experimental Development. pg. 44. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2010-2011/prfrmnc-e/rc4425-11-eng.pdf
The CRA oversees the integrity of various tax incentives that promote economic growth in Canada, such as the Scientific Research and Experimental Development (SR&ED) program. The SR&ED program is the largest single source of federal government support for industrial research and development. The CRA strives to deliver the tax incentives in a timely, consistent, and predictable manner, while ensuring businesses prepare their claims in compliance with tax laws, policies and procedures.
During 2010-2011, the SR&ED program provided about $3.5 billion in tax assistance to over 21,000 claimants. In addition, as a result of our risk assessment process, in 2010-2011, we identified and addressed $473 million of non‑compliance, an increase of 5.6% from the previous period.
2009-2010
Source: Canada Revenue Agency. (2010.) Annual Report To Parliament 2009-2010. Our 2009-2010 Priorities. Strengthening Service. Scientific Research and Experimental Development. pg. 72. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2009-2010/prfrmnc-e/rc4425-10-eng.pdf
In the 2008 federal budget, the CRA committed to enhancing the quality assurance methodology of the Scientific Research and Experimental Development (SR&ED) program. In 2008-2009, we consulted with stakeholders and, in turn, developed a national SR&ED quality assurance framework. This framework will help ensure SR&ED claims and decisions are appropriate and consistent with CRA policies and the governing legislation across the country. Based on this framework, the SR&ED Quality Assurance Operations manual and the requisite tools were developed in 2009-2010.
In the 2008 Federal Budget, the CRA also committed to reviewing the SR&ED policies and procedures. In 2009-2010, we analyzed, organized, and clarified all SR&ED policy information. Over the next two years, the SR&ED program will be conducting online consultations to get the public’s feedback on the new policy documents.
In 2009, Canada’s SR&ED program provided about $3.3 billion in assistance to over 21,000 claimants.
In 2009-2010, we expanded the filing capabilities of the CRA’s Corporation Internet Filing service to allow eligible corporations to file their SR&ED claims, with their income tax returns, using the internet.
Back to Top
2008-2009
Source: Canada Revenue Agency. (2009.) Annual Report To Parliament 2008-2009. Our 2008-2009 Priorities. Strengthening Service. Scientific Research and Experimental Development. pg. 60. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2008-2009/prfrmnc-e/rc4425-09-eng.pdf
To strengthen service delivery, we focused on increasing accessibility to, and the efficiency of, the Scientific Research and Experimental Development (SR&ED) tax incentive program. In 2008, Canada’s SR&ED program provided about $4 billion in tax assistance to over 18,000 claimants.
During 2008-2009, we made it easier for businesses to apply for this tax incentive by publishing a simplified claim form and associated guide, as well as a new CD-ROM, brochure and leaflet. In addition, we developed a Web-based SR&ED Eligibility Self-Assessment Tool (ESAT) to help claimants identify whether their research and development projects may qualify under the program. Statistics on Web visits to our SR&ED home page indicate that awareness of the SR&ED program has increased, which we attribute, in part, to the release of these new products.
Priority: Enhance our administration of the scientific research and experimental development (SR&ED) tax credit
Achievements: In 2008-2009, we:
- redesigned our SR&ED Web pages;
- produced a CD-ROM that gives an overview of the SR&ED program and acts as a portal to our SR&ED Web pages; and
- published a new brochure and leaflet that provides a one-stop source of information on SR&ED.
For more information on the CRA’s administration of this federal incentive program please refer to www.cra.gc.ca/sred.
2007-2008
Source: Canada Revenue Agency. (2008.) Annual Report To Parliament 2007-2008. A Snapshot of Reporting Compliance (PA4). Scientific Research and Experimental Development. pg. 59. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2007-2008/prfrmnc-e/rc4425-08eng.pdf
[The Scientific Research and Experimental Development Program] provides more than $4 billion in tax credits to almost 18,000 claimants.
2006-2007
Source: Canada Revenue Agency. (2007.) Annual Report To Parliament 2006-2007. Scientific Research and Experimental Development. pgs. 57 and . Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2006-2007/prfrmnc-e/rc4425-07eng.pdf
Annually, the Scientific Research and Experimental Development (SR&ED) tax incentive program provides more than $3.0 billion in tax credits to over 18,000 claimants as an incentive to conduct qualifying industrial research and development activities in Canada. A prompt and thorough review of the applications for these tax credits demonstrates the CRA’s commitment to effective administration of the related programs and fosters reporting compliance. In 2006-2007, we met all of our external service standards in the SR&ED and Film and Video tax credit programs.4
[…] [The Scientific Research and Experimental Development Program] annually provides more than $3.0 billion in tax credits to over 18,000 claimants. 5
2005-2006
Source: Canada Revenue Agency. (2006.) Annual Report To Parliament 2005-2006. Assessment of Returns and
Payment Processing (PA2). Scientific Research and Experimental Development. pg. 38. Retrieved December 29, 2017, from: https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/gncy/nnnl/2005-2006/prfrmnc-e/r_2005-06-eng.pdf
[The] Scientific Research and Experimental Development Program […] provides investment credits as an incentive to conduct qualifying industrial research and development activities in Canada:
- spending of $52.7 million (520 FTEs); and
- provided $1.8 billion in tax credits.
Analysis
The CRA’s Annual Reports to Parliament and Departmental Performance Reports: Trends
We reviewed and analyzed the CRA’s Annual Reports to Parliament and Departmental Performance Reports from 2005 until present day for information on the SR&ED program. These reports included information on how many claimants the program served, the value of the tax credits refunded, and hints as to how the program is perceived.
This article includes several trends in how SR&ED is featured in these reports, including:
Analysis of SR&ED Reporting
SR&ED Funding Amounts
| Fiscal Year Start (May 1) | Fiscal Year End (April 30) | Refund ($B) | Difference ($B)* | Difference (%)* | # of Applicants | Refund Average per Applicant* |
|---|---|---|---|---|---|---|
| 2005 | 2006 | $1.8 | ||||
| 2006 | 2007 | $3.0 | $1.2 | 66.7% | 18,000 | $166,666.67 |
| 2007 | 2008 | $4.0 | $1.0 | 33.3% | 18,000 | $222,222.22 |
| 2008 | 2009 | $4.0 | ($0) | (0%) | 18,000 | $222,222.22 |
| 2009 | 2010 | $3.3 | ($0.7) | (17.5%) | 21,000 | $157,142.86 |
| 2010 | 2011 | $3.5 | $0.2 | 6.1% | 21,000 | $166,666.67 |
| 2011 | 2012 | $3.6 | $0.1 | 2.9% | 23,000 | $156,521.74 |
| 2012 | 2013 | $3.6 | ($0) | (0%) | 28,140 | $127,931.77 |
| 2013 | 2014 | $3.3 | ($0.3) | (8.3%) | 24,794 | $133,096.72 |
| 2014 | 2015 | $3.1 | ($0.2 ) | (6.1%) | 24,302 | $127,561. 52 |
| 2015 | 2016 | $3 | ($0.1) | (3.2%) | 22,839 | $131,354.26 |
| 2016 | 2017 | $2.7 | (0.3) | (10%) | 21,000 | $128,571.43 |
*Calculations by the SR&ED Education and Resources team.
The table above shows our analysis of the reports since the 2005 Fiscal Year (FY). The table shows that the amount offered by government grew between 2005 and 2008. In 2009 the SR&ED program funding suffered the most dramatic loss, losing 17.5% of funding as the money available to the program dropped from $4 billion to $3.3 billion. This remained the most dramatic drop in the program’s funding; however, between 2009 and 2012 the funding increased again. Had the trend between 2009 and 2012 continued, the amount offered in 2015 would have been $4.2 billion; however, this is not the case.
Starting in FY 2013 (April 1, 2013 – March 31, 2014) the amount of CRA tax assistance for SR&ED began steadily decreasing. Thus, the program saw a decrease from $3.6 billion down to $3.3 billion (an 8.3% decrease) in 2013, and a further decrease of $200 million (a 6.1% decrease) in 2014. The figure reported in the 2015 Departmental Performance Report is vague as it states the “program provided more than $3 billion in investment tax credits.” 6 Therefore, if the program provided exactly $3 billion in support, the funding drop in 2016 would be 10%; however, if the program provided $3.1 billion in 2015 (to match 2014), then the funding would have decreased by 12.9% in 2016, when only $2.7 billion was provided.
Although 2016 saw the lowest amount of funding offered since 2005 ($2.7 billion in 2016 and $1.8 billion in 2006), the 2016 FY did not see recipients of SR&ED receive the lowest amount since 2005.
SR&ED recipients in 2014 saw the lowest average funding amount provided per claimant, between 2005 and 2016. However, again, although this was the lowest individual payment, this was only $5,535 less than the average amount claimed in 2013. The 2009 FY was the year with the biggest difference between the total amount given to the SR&ED program, and the highest drop in individual claims. Between the 2008 FY and the 2009 FY the average amount provided to individual claimants dropped by over $65,000, from $222,222 in 2008, to $157,142 in 2009.
The reduction in overall funding for the SR&ED program was also noticed by industry group, Canadian Advanced Technology Alliance (CATA), which, in July 2017, published an article that suggested the Canadian government had been “quietly chopping billions of dollars” from the SR&ED program between 2009 and 2016.7
The changes announced in the 2012 Federal Budget, which relate to the following dates of introduction could have contributed to the reduction in SR&ED payments:
- January 1, 2013: Contract Payments reduced to 80% of the paid value.8
- January 1, 2013: Proxy overhead calculations reduced to 60% from 65%.9
- 2014: All capital expenditures incurred during the 2014 fiscal period will not be eligible for SR&ED.10
- January 1, 2014: Proxy overhead calculations reduced to 55% from 60%.11
- January 1, 2014: General SR&ED refundable credit reduced to 15% from 20%.12
In the CATA article the CRA, although they give no formal comment, suggest that legislative changes in 2012 made the program more cost effective,13 in response to “aggressive positions taken by claimants in their credit applications” that included inflated expenditures. The CRA stated that this led the CRA to spend more money on compliance, which, in turn, reduced the amount paid out in tax credits to support research and development (R&D) activities.14 We discuss compliance and non-compliance in more detail below.
Number of SR&ED Claimants
| Fiscal Year Start (May 1) | Fiscal Year End (April 30) | Refund ($B) | Difference ($B)* | Difference (%)* | # of Applicants | Refund Average per Applicant* |
|---|---|---|---|---|---|---|
| 2005 | 2006 | $1.8 | ||||
| 2006 | 2007 | $3.0 | $1.2 | 66.7% | 18,000 | $166,666.67 |
| 2007 | 2008 | $4.0 | $1.0 | 33.3% | 18,000 | $222,222.22 |
| 2008 | 2009 | $4.0 | ($0) | (0%) | 18,000 | $222,222.22 |
| 2009 | 2010 | $3.3 | ($0.7) | (17.5%) | 21,000 | $157,142.86 |
| 2010 | 2011 | $3.5 | $0.2 | 6.1% | 21,000 | $166,666.67 |
| 2011 | 2012 | $3.6 | $0.1 | 2.9% | 23,000 | $156,521.74 |
| 2012 | 2013 | $3.6 | ($0) | (0%) | 28,140 | $127,931.77 |
| 2013 | 2014 | $3.3 | ($0.3) | (8.3%) | 24,794 | $133,096.72 |
| 2014 | 2015 | $3.1 | ($0.2 ) | (6.1%) | 24,302 | $127,561. 52 |
| 2015 | 2016 | $3 | ($0.1) | (3.2%) | 22,839 | $131,354.26 |
| 2016 | 2017 | $2.7 | (0.3) | (10%) | 21,000 | $128,571.43 |
*Calculations by the SR&ED Education and Resources team.
In the 2013-2014 FY the number of taxpayers filing SR&ED claims decreased by 3,346 claimants; from 28,140 in 2012, to 24,794 in 2013. This is in stark contrast to the rise in claimants between 2011 and 2012, when the number of those filing SR&ED claims rose by 5,140, from 23,000, to 28,140. The decrease in the number of claimants in 2014 coincides with some other major program changes that were announced in the 2012 and 2013 federal budgets, and introduced in 2014:
2012 Federal Budget
Improvements include:
- Increasing the number of technical reviewers.
- Providing additional training and establishing coordinated technical support for the technical reviewers
- Devoting more time to program services.
- Enhancing the quality assurance methodology
- Reviewing dispute resolution procedures to ensure their effectiveness.
In addition, the CRA consolidated and clarified the administrative policies that are currently contained in about 70 documents pertaining to the SR&ED tax incentive program. The revised information was presented in a more user-friendly format on the CRA website in December 2012, with the objective of reducing complexity and improving accessibility.15
2013 Federal Budget
The Canada Revenue Agency will also receive new funding of $15 million over two years to focus more resources on reviews of SR&ED program claims where the risk of non-compliance is perceived to be high and eligibility for the SR&ED program unlikely. The Canada Revenue Agency will also more frequently apply penalties for false statements or omissions, where appropriate. In addition, in order to enable better risk assessment, SR&ED program claim forms will be revised to require more detailed information. To enforce this new requirement, Economic Action Plan 2013 proposes that a new penalty be applied in instances where the new required information is missing, incomplete, or inaccurate.16
The changes announced in the 2012 and 2013 budgets focussed on non-compliance and reviews, as a result of pressure from the media and the Jenkins Report released in 2011. However, the changes also meant a dramatic decrease in potential tax credits for a lot of taxpayers, especially those who relied on capital expenditures, direct labour and arms-length contractors.17 The 2016-2017 FY saw the second largest drop in claimants by 1,839, from 22,839 to 21,000, which has been attributed to an increase in reviews. In July 2017 the Canadian Advanced Technologies Alliance (CATA) reported that the CRA has a “change rate target” for SR&ED reviews of 75%, which means that the CRA “aims to detect non-compliance in 75% of their reviews.” 18 This suggests that as the CRA wish to change 75% of SR&ED claims that they review, which could have led to “many companies [being] turned off the program due to the recent harsh reviews [conducted in 2017] by [the] CRA.”19
SR&ED “Non-Compliance” Reporting
In the 2012 FY, CRA reports began including the amount recovered due to “non-compliance,” this was also reported in 2013 and 2014 (shown below with the most recent first):
2014-2015
“The CRA identified over $394 million in non-compliance.” 20
2013-2014
The CRA identified over $534 million in non-compliance.” 21
2012-2013
The CRA identified $404 million in non-compliance, compared to $424 million in 2011-2012.22
After 2015, in the Departmental Performance Reports, non-compliance is not reported on specifically for SR&ED, and instead highlights other sectors such as construction, tax evasion and aggressive tax avoidance.
Other Items: One-time Reports
Staffing
The 2013-2014 Annual Report to Parliament, reports that the financial resources allocated to the SR&ED program went beyond $74 million dollars and the number of employees exceeded 600.23
Staffing and resources information, specific to the SR&ED program, was not reported on in any other the Annual Reports or Departmental Performance Reports after 2013.
Fiscal Impact
The 2016-2017 report is the only report that includes a figure to establish the “dollar fiscal impact” of the SR&ED program, which it reports as “$349 million.” 24
This may be the first of many reports on the dollar fiscal impact of the SR&ED program due to calls by the media since 2000 25 to publish figures on how much monetary wealth the SR&ED program generates.
What do these trends in the CRA’s reports on SR&ED suggest?
There is a lack of consistency across all the years in terms of what is reported. In the 2016 and 2017 FY Departmental Performance Reports, neither the SR&ED amounts, nor the number of claimants were reported consistently. This makes it difficult to perform an accurate analysis, however, what we have been able to ascertain from the information provided, is that the government’s focus in the reports is easily swayed by media pressure.
Additionally, this analysis shows that funding for the SR&ED program in 2016 was the lowest it’s been since 2005, and between 2012 and 2016 the funding available to the SR&ED program decreased by almost $90 million, from $3.6 billion in 2012, to $2.7 billion in 2016. The average amount each claimant received, however, was higher in 2016 due to the gradual decrease in claimants since 2012, which in total, fell by 7,140 since its peak of 28,140 in 2012.
What does this mean for the SR&ED program?
In 2015 we estimated the amount available to the SR&ED program until 2021, based on the trends we saw in our analysis of the CRA’s reports since 2005.
| Fiscal Year Start | Fiscal year End | Refund ($ in billions) | Difference ($ in billions)* | Difference (%)* |
|---|---|---|---|---|
| 2012 | 2013 | $3.6 | ||
| 2013 | 2014 | $3.3 | ($0.3) | (8.3%) |
| 2014 | 2015 | $3.1 | ($0.2) | (6.1%) |
| 2015 | 2016 | $2.9 | ($0.2) | (7.2%)** |
| 2016 | 2017 | $2.7 | ($0.2) | (7.2%) |
| 2017 | 2018 | $2.5 | ($0.2) | (7.2%) |
| 2018 | 2019 | $2.3 | ($0.2) | (7.2%) |
| 2019 | 2020 | $2.1 | ($0.2) | (7.2%) |
| 2020 | 2021 | $1.9 | ($0.2) | (7.2%) |
*Calculations by the SR&ED Education and Resources team.
**Anticipated refund calculated based on the average of FY2013 – FY2016 decreases.
Based on these predictions we compared our predictions regarding the SR&ED program with the actual amount spent on SR&ED in that year (see table below).
| Fiscal Year End | Anticipated ($b)* ** | Actual ($b) | Correct Prediction?* |
|---|---|---|---|
| 2013 | $3.6 | $3.6 | Yes |
| 2014 | $3.3 | $3.3 | Yes |
| 2015 | $3.1 | $3.1 | Yes |
| 2016 | $2.9 | $3 | No ($0.1b difference) |
| 2017 | $2.7 | $2.7 | Yes |
| 2018 | $2.5 | Unknown |
*Calculations by the SR&ED Education and Resources team.
**The average of FY2013 – FY2017 decreases
Our prediction for SR&ED funding for each year other than FY2016 was correct, and so if the trend continues that the SR&ED program’s funding is reduced by almost 7% each year, then by 2021 the program’s funding will be reduced to $1.9 billon (see table below).
| Fiscal Year Start | Fiscal Year End | Actual Refund ($b) | Anticipated Refund ($b)* | Difference (%)* | Difference ($b)* |
|---|---|---|---|---|---|
| 2012 | 2013 | $3.6 | |||
| 2013 | 2014 | $3.3 | -8.33% | -$0.3 | |
| 2014 | 2015 | $3.1 | -6.06% | -$0.2 | |
| 2015 | 2016 | $3 | -3.23% | -$0.1 | |
| 2016 | 2017 | $2.7 | -10% | -$0.3 | |
| 2017 | 2018 | $2.4 | -6.9%** | -$0.19 | |
| 2018 | 2019 | $2.2 | -6.9%** | -$0.17 | |
| 2019 | 2020 | $2 | -6.9%** | -$0.16 | |
| 2020 | 2021 | $1.9 | -6.9%** | -$0.15 | |
| 2021 | 2022 | $1.76 | -6.9%** | -$0.14 | |
| 2022 | 2023 | $1.63 | -6.9%** | -$0.13 | |
| 2023 | 2024 | $1.51 | -6.9%** | -$0.12 | |
| 2024 | 2025 | $1.39 | -6.9%** | -$0.11 |
*Calculations by the SR&ED Education and Resources team.
**The average of FY2013 – FY2017 decreases
Had the program maintained funding at the 2005 level and only adjusted for inflation at 1.65%, then in the 2018 FY there would be $2.1 billion available;26 however, if our predictions are correct, (that in 2021 the available funding for SR&ED will be $1.9 billion) this will mean a decrease in real terms of $380 million from the SR&ED program, as adjusted for inflation, $1.8 billion would be worth over $2.2 billion in 2021.
Conclusion
In the 2016 FY, Canada’s income from taxation was over $244 billion.27 As $2.7 billion was provided in funding for the SR&ED program, this equated to only 1.1% of Canada’s income. Academics from the University of Western Ontario stated in a report that the “reduction in real federal spending on scientific research and development [R&D] [between 2010 and 2015], which has been particularly marked in the case of intramural spending, has no efficiency justification.” 28 Additionally, CATA claim that “the report of the Jenkins Expert Panel on Federal Support to R&D was stated to have been the basis for these reductions in the [SR&ED] program” 29 and continues to call for the CRA to begin tracking and reporting on the effectiveness of its research and development programs.30
Although the Annual Reports to Parliament and the Departmental Performance Reports often state the obviously quantifiable aspects of the SR&ED program (e.g. the amount of government funding the program receives and the amount of taxpayers who file claims for the tax credit), these documents could provide more information on how effective the SR&ED program is in terms of the value of the R&D funded. R&D value was published in 2011 by a think-tank that reported every dollar spent on R&D, generated a further R&D value of $1.38,31 and then briefly in the 2016-2017 Departmental Performance Report. 32 This information accompanied by a clear and consistent report of other quantifiable aspects of the SR&ED program would provide enough information to accurately analyze the program and support its longevity.